Three Interesting Questions - Part I - Oh, the Things We Know

Last week I talked about just how much fun it is to be an auditor. I was specifically speaking to the wide range of experience that comes with the territory. Wisnu Marbun responded with some comments and questions I felt were great food for thought. I’m going to address these over the next few days and, to make it a little easier, I’ve broken the comments/questions down to three areas:

1) How much do audit professionals need to know about the organization and its activities, and how much technical knowledge do they need? (More than the auditee?)
 
2) How do junior auditors show they have the experience necessary for an assignment? How do junior auditors prove to their boss they can do the job?
 
3) What are your most unforgettable moments as a junior auditor?
 
I may have misstated the questions, and it wouldn’t hurt for everyone to see them in context, so I would suggest you go back and look at the original response. (And you may even want to provide your own specific responses.)
 
But, let’s all dive into that first one right now.
 
The question of how much knowledge the auditors should have about the area under review is a thorny one. While I doubt there is an audit shop out there that feels the auditors should have MORE knowledge/experience than the auditees (even if they feel it is true, it is probably too tall an order to fill), I am sure there are widely divergent opinions and applications about just how much experience is the “right” amount.
 
In our shop, we have tried to maintain a balance between hiring people with experience in audit (to bring in expertise from other audit departments), hiring people from the business (to help us understand the way the business works), and hiring people fresh from college (to give us new perspectives on just about everything.) I am a particular fan of bringing new people in because the concept of “fresh perspective” is generally underestimated. While knowledge and expertise are important, it seems to me that some of the best findings come from new auditors – ones with little business or audit experience. What I have seen, time and time again, is that the neophyte, not having preconceived notions and not assuming, asks the questions more seasoned/experienced auditors think are not worth asking. And those questions have led to gold.
 
But, depending on the audit work you do, there are times when expertise can’t be beat. And many audit shops require (and desperately need) that expertise. 
 
At the core of it all, we need to remember what we’re trying to accomplish in our audits. Let me use an example specific to my industry – claims settlement.  Over the years, I have had claims managers and executives assert that our auditors do not understand how to settle a claim, so there is no way they could provide value in performing the audit. I have explained to them that I do not need my auditors to be experts in claims to make an assessment of the processes and controls. It is not our job to second-guess the amount of a settlement. I do not expect my auditors to make a determination whether that broken shoulder is worth $15,000 or $20,000 or $1 million. However, I do expect them to be able to see that the process used to determine that amount matches the company procedures, that the approval for that amount went to the appropriate level, that the controls over check issuance ensured appropriate payment, and that the overall process worked efficiently to help the company meet its objectives.
 
You see, this is the point. As auditors, we have a number of skills. Among these are an understanding of our company operations and an understanding of how our company operates within its business. It also might mean we have an understanding of accounting fundamentals, the ability to communicate, and the ability to work with people. But the number one expertise an audit department should bring to the table in all activities is the ability to analyze processes and control structures to ensure they are working effectively, efficiently, and in support of the company’s objectives.
 
Everything else is gravy.
 
Again, depending on your specific environment, the business/technical knowledge needs, just like mileage, may differ. So, the question to everyone – does that match your perceptions? And what are your local requirements?

Posted on Aug 15, 2010 by Mike Jacka

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