Unprepared to Close
Upon arrival at a foreign site engagement, an audit manager must act quickly to address the inadequacy of her team’s work.
Amy is an audit manager for Aero Co., a global aerospace conglomerate headquartered in the United States that provides aeronautical services and produces commercial, military, and executive aircraft. With operations in Latin America, Europe, and Asia; annual revenues in excess of US $4 billion; and more than 15,000 employees worldwide; Aero Co. is a major player in the industry. Amy is one of five internal audit managers whose sole purpose is to conduct comprehensive financial and operational audits of the company’s foreign affiliates. Upon graduation from college, she was hired directly into Aero’s internal audit department and since then has risen quickly through the ranks to her current position. She leads a three-person audit team on every engagement — a senior auditor and staff auditor from Aero’s corporate office and a local auditor from a major CPA firm in the affiliate’s country. The audits usually include three weeks for on-site fieldwork. Amy typically arrives on site during the final two weeks to review the work performed and attend the closing meetings.
The U.S. team recently began an audit of the company’s Brazilian affiliate, with assistance from a local CPA. They met with the affiliate's management, presented an overview of the audit process, and scheduled all of the update and end-of-audit meetings with finance and operations. Amy was keenly aware that customs, culture, and language were potential obstacles to a successful engagement at this location, and she had briefed her U.S. team members accordingly in advance.
Toward the end of the audit's second week, Amy arrived on site. Because she placed a high degree of confidence in her team's performance, she did not invest much time reviewing the workpapers remotely before her arrival. Amy set up shop with her team and began to review the workpapers and preliminary audit findings. To her surprise, much of the work had not been done; moreover, the few observations her team had noted would be of little value to management.
Taken aback by the discovery, Amy decided to review the books, ledgers, and source documentation herself. She quickly realized that the auditors had missed some major items — apparently, they did not possess the skills to grasp the importance of these issues. She then met with the team’s senior auditor to review the agenda for the next day’s update meeting with management, including the findings to be presented, and realized the team was inadequately prepared. Amy also doubted whether next week’s close-out meetings would be successful. She was both disappointed and embarrassed by her team’s performance.
That evening in her hotel room she contemplated the day’s events. She and her team had a lot to accomplish before their scheduled departure. Amy would have to refocus the team’s efforts and require everyone to work through the weekend — even with this additional push, the schedule would still be extremely tight.
Amy felt a sinking feeling as she sorted out the details. She has no time to waste and needs to fashion a plan that will rescue this audit. If you were Amy, what would be your next steps?
Share your comments below.
Response to Unprepared to Close
Amy needs to make the best of what she has learned from her own review. She also needs to keep her management abreast of the situation and her intentions. Unless she can extend the audit and possibly bring additional competent staffing she needs to meet with management the next day as planned. Amy should show no frustration in order to maintain the team’s and her own credibility and explain that the audit has identified some potentially major items that require follow-up. Then she should share that the remaining audit time will be used to focus on those issues. Amy should also request utmost cooperation from the staff at the location.
From there she should remain hands on directing her staff to assess the items found. Amy should be reprioritizing the teams focus and direction as the assessment is performed. Work hours should be reasonable modified to achieve the revised work plan while keeping to the new schedule while reprioritizing as work is performed.
Upon completion of the audit and with the help of her own senior leadership she should assess her own performance to determine what went wrong and why. Corrective action steps should then be developed and implemented. At a minimum, Amy needs to come to terms with failing to adequately assess the team in light of known challenges at the location and plan her own time accordingly. The professional Standards related to Due Professional Care, Performance, and Resource Management may all be applicable and should be considered.
Posted By: Mark R. Trojanowski, CIA, CRMA
2014-02-11 12:47 PM
Unprepared to Close
While there are many comments that can be made on this regarding inadequate preparation, those don't help when someone is already nearing the end of the audit. The key message I would send Amy is to ensure sufficient audit quality over the audit areas on which she plans to report. It is likely she will have to narrow scope and focus only on selected higher risk areas in completing this audit. Better to have audited a few things well than do a poor job on the full original scope.
Posted By: Doug Anderson
2014-02-10 6:08 PM
Unprepared to Close
In my opinion Amy did her Team a dissservice by not reviewing workpapers prior to her arrival. If you are not going to be in the field with the Team at the beginning of the review then it si critical that you review their work remotely or you wind up in a situation like this one.
Posted By: J.Anthony
2014-02-10 11:44 AM
Review Work of Audit Team Early in the Process
I would meet with the client to ask for more time, explaining there are new developments in the audit which need to be explored. I would give an approximate date for completing the audit. In addition, I would meet with my team to express my concerns with their work and to get them on the right track, with me becoming part of the audit team to complete the work in a timely manner. Lastly, I would ensure I review the work of the audit team early on to ensure the appropriate risks are being reviewed.
Posted By: Rebecca Johnson
2014-02-10 10:35 AM
Unprepared to Close
My next step in this Manager's shoes will be as follows:
1. Out of all the major items she feels the team has missed, pick as many as she feels can be reasonably examined from now, through the weekend, up to the closing meeting next week. Only review what you can provide reasonable assurance on, rather than trying to tick the boxes and doing an unsatisfactory review.
2. In the current Management update tell them that barring the minor recommendations from the team, no exceptions have been noted yet but they will inform them if anything comes up by the closing meeting.
3. Amy, despite being the Manager will have to step into the execution role for the rest of this assignment herself, given that the team missed out a few issues. She and the Senior Internal Auditor can focus on a set of critical areas which they think they can cover in the remaining time and they can ask the other team members to touch up already reviewed areas to the extent that any independent observer will feel that they have provided reasonable assurance with regards to the same.
4. I have been on 3 short 2 week international assignments and I know that these have a lot of work unrealistically jam packed into a short timeline and the three weeks Amy's team would have on-site would similarly be quite less and without someone on the team with experience in the nature of the reviews and insight on the branch geography, it will be hard to get a good review done in such a short time.
5. In a 2-3 week overseas assignment it can be hard to provide genuine recommendations that add value to Management unless like in one of my international assignments, you get lucky enough to stumble upon a major issue. Even if the remaining recommendations that Amy't team Managed are not much of a value add due to the fact that they missed out on reviewing critical areas, ensure that they have done work up to a reasonable standard on whatever areas they have reviewed so that there are no issues undiscovered in the areas that they actually sampled.
6. I am surprised that this problem happened with an on-site team of 3 including a CPA from a local affiliate in the country. We nearly had a similar situation but that was because there was just 2 of us from overseas with no local assistance in a jam packed 2 week assignment, so when our Manager came in the 2nd week he too had to chip in.
7. Close off the review based on whatever you have examined. Normally the rule is to close off by the close out meeting and even if you submit your report after returning home, only issues discussed at the close out meeting overseas can be included. However try to get some leeway on this. Once we were being assisted in some forensic data analysis by our offsite expert and the client took some time to generate the transaction list so that information was assessed once we returned to finish the report documentation. If you feel that a critical issue need to be examined and due to your teams oversight you did not get to review it, ask the local CPA to continue to collect the information from Management and review it with him whilst you return to the US and ask Management if you can close off on any potential recommendations linked to that bit of data through a tele / video conference at a later date. Make your team examine this data back home (which they should have done onsite) without reducing the time they spend on the other assignments they were supposed to start once they get back.
8. Once you return, do a job performance review for each of the team members involved. Given that they have the technical competence and prior experience in doing these offshore branch reviews, along with support from a local CPA affiliate, what went wrong in their analysis on client site? Normally the geographical differences involve cultural customs, extent to which information systems are used, templates in which reports are accepted etc. but the core business processes should make sense to overseas internal auditors as well.
9. Normally during planning for overseas assignments you ask the client to confirm the extent to which they use their Company's information systems and reporting methodologies, the kind of information you would need, how much processing time they need for the information, the timelines for your closing meeting and reports, securing comfortable and convenient accommodation for your team etc. However in these short 2-3 week assignments, the detailed audit plan and program and even the key sets of information that your team would need are normally requested from the client in advance and you only go onsite once the information is ready. This way there is no excuse from their side with regards to the time they need to respond to your data request as well. This will also help you partially avoid the risk that your team will skip examining key areas. There still is a minor risk that your team may not pick an adequate sample but you can't always manage things to that level.
Posted By: Akshay Berera
2014-02-03 7:34 PM
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