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By David R. Frazier, Gary M. Gillette, and Kathy J. Ecklund

"An audit is an audit is an audit" is no longer an acceptable concept to any of the parties to the process. Both the firms and their clients are looking for added value.

Adding Value to the Audit

To make an audit a value-added service, the audit staff must be alert while performing audit procedures for ways the client can improve its operations. An objective view of operations may result in suggestions for improvement previously overlooked by the client. Sometimes, the more obvious improvements are the ones the client will value the most. Examples of comments for improving operations or administration include the following:

* Vendor invoices should not be paid before their due date (unless taking advantage of cash discounts) and available cash should be temporarily invested in interest bearing accounts.

* Low cost maintenance inventories should be expensed when purchased to avoid the cost and trouble of accounting for them as prepaid expenses.

* Maintenance histories should be kept to help identify unreliable or high maintenance equipment that may need

* Fast-moving finished goods inventory should be stored near the shipping area to minimize retrieval time and forklift usage.

* Discounts and other concessions should be considered to increase customer order volume and to maximize overall rates of return.

* Standardized forms should be developed to document recurring routine journal entries and transactions.

* Collection efforts should be continued even after accounts have been
written off. Management should
consider the cost/benefit of using collection agencies for this task.

* Large quantities of scrap material stored throughout the warehouse should be segregated from other inventory. Scrap should be sold periodically on the basis of competitive bids. This will reduce the cost of warehousing scrap inventory.

Identifying Additional Services

To identify additional service opportunities, it is important to educate
audit staff about the various types
of services the firm can provide and then instruct staff to be aware of client
needs and look for opportunities to provide additional services during the
audit. The following are examples of things audit staff might consider
when looking for new areas of
potential service:

* Does the client's bookkeeping/accounting system meet its needs?

* Would an outside payroll service be beneficial to the client?

* Is the client getting meaningful interim financial statements? If not, could the firm prepare or review the interim

* Who prepares the client's tax returns?

* Does the client consider tax ramifications in its decision-making process? If not, could the firm provide tax planning services for the client?

* Does the client have a written business plan?

* Are the clients' investments or operations appropriately diversified?

* Is the client's insurance adequate (e.g., property, general liability, executive life insurance)?

* Does the client have uninvested or uninsured cash?

* Are the client's employee benefit plans adequate and cost-effective?

* Does the client's computer system meet its needs?

* Does the client have adequate internal controls?

Using Nonbusy Season Time Efficiently

Most firms view January through April as their busiest time of the year, but many are beginning to think of the fall months as their "second busy season." Fall is an excellent time to plan for the upcoming busy season and to review existing client relationships to determine whether they should be continued. If practical, the auditor should consider performing interim procedures to ease workloads during the first part of the year. There are other advantages to the second busy season as well:

* Clients perceive increased contact as a sign the firm cares about their business.

* Significant issues are identified and resolved before the end of the year.

* Faster responses to clients' needs can be provided.

* Staff members sharpen their skills rather than sit idle.

The following are examples of some of the interim audit and procedures that may be performed:

* Read and summarize new leases and contracts.

* Review minutes of board of directors' meetings.

* Test significant transactions, such as sales or purchases of significant assets or lines of business.

* Perform analytical procedures for revenues and expenses, such as analyses of sales or gross profit per month.

* Confirm accounts receivable.

* Observe physical inventory counts.

* Perform inventory price tests.

* If control risk is assessed at less than maximum, test compliance with internal controls. *

David R. Frazier, CPA, Gary M. Gillette, CPA, and Kathy J. Ecklund, CPA, are with Practitioners Publishing Company. This article was adapted from material previously published in The PPC Accounting and Auditing Update.

Douglas R. Carmichael, PhD, CPA
Baruch College

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