Audit Programs
AuditNet Links
AuditNet Virtual Library
AuditNet Newsletter
Ask the Auditor
Audit Jobs
Partner Discounts
Search the Site
Our Sponsors
Advertise
Sign the Guestbook
AuditNet Home Page

Accounting Procedures for Internal Control
CLICK HERE TO ORDER

Closing Audit Findings

By Tom Crouch, CPA, CIA, CISA, and Attorney
and Linda Sagraves, CPA

Are auditors just responsible for issuing audit reports and addressing audit issues or audit findings?  Do auditors have a responsibility to write audit findings in a constructive and workable manner?  Should the sole responsibility for closing audit findings be assigned to the auditees?   Do both auditees and auditors fail when audit findings remain unresolved over many years?  How do good auditors and good auditees approach addressing audit findings and closing audit findings?  The brief text below will only indirectly attempt to address these questions.

Auditors often reissue the same audit findings for more than two years.  It is clear that it is sometimes unavoidable; however, these instances may indicate a communication failure.  Several communication breakdowns between the auditor and auditee can occur when a problem is found during an audit:
· The auditor only identifies the problem's symptoms
· The auditor failed to understand the problem
· Auditees do not understand the implications of the problem
· Auditors suggest an inappropriate or impractical solution
· The cost of resolving the problem outweighs the benefit

A problem symptom might be the farmer's cows are loose in the neighborhood.  The root cause of the problem might be one of these:
· the farmer's fence gate has a broken latch,
· the farmer's fence has a large hole, or
· the fence height is not high enough.
Since the cows represent assets, the farmer will want to allocate sufficient resources to correct the problem.  If the farmer does not address the problem's root cause, the cows will continue to get loose in the neighborhood.  Even someone who does not own a farm will realize the cows are loose, but someone needs to provide a workable solution on how to fix the problem.  If the cows continue to get loose, the audit finding would not be closed.   

In many instances, auditors might only have identified the problem's symptoms instead of the root cause.  The symptoms are usually easy to identify, even with only minimal audit experience.  When auditors are primarily addressing symptoms, their audit findings focus on the errors instead of identifying and discussing the problem's root cause, which takes a deeper understanding of the problem.  When the problem analysis is thorough, the recommendation or solution is better.

The auditors might not have totally understood the problem, just the symptoms, so their analysis may be incomplete.  In other instances, the auditors may have understood the problem but their proposed solution was not practical, useful, beneficial, or appropriate for the auditee. 

When the auditees are aware of a problem, they typically will resolve the problem, unless they do not know the root cause or cannot justify the cost.  Then, the auditee is left to resolve the symptoms or try to justify the cost of the solution. 

Sometimes the auditees might not understand the full implications or the consequences of not correcting the problem.  When they grasp the full implications, they might assign the resolution a much higher priority.

Knowledgeable auditees try to clarify the true nature of the problem and potential solutions.  These auditees try to explain why some options might not be proper solutions.  Often the best situation is when the auditor and auditee agree on the problem's root cause and a workable solution.

The auditors might not have discussed the nature of the problem and potential solutions with the right people.  One might just say that the auditor did not provide good customer service so the customer did not buy the recommendation.

The same audit finding and recommendation year after year may be an obstacle to resolving audit findings.  The recommendation might have been vague which hinders resolving the audit finding.  A shift in the wording or the focus might help resolve the matter.

More complex audit issues often take longer to resolve, and may be much more expensive to correct.  Simple issues are often the easiest, fastest, and cheapest to fix.  The higher the cost to resolve an audit finding, the longer its correction might be deferred.  The greater the impact of fixing an audit finding, the faster the problem is likely to be fixed.  When the net benefit of fixing the problem is higher, the problem probably will be corrected faster.

Conclusion

Experienced auditors and knowledgeable auditees should be resolving more audit findings.  When auditors continue not closing audit findings, they might be viewed as just throwing darts at the auditees instead of problem solving.  Good auditors and good auditees care about moving the auditee toward an improved position.

Copyright (C) 2004 by Tom Crouch and Linda Sagraves  This text may be forwarded via fax or e-mail so long as the copyright is shown.  This text may be re-printed anywhere in a constructive manner so long as the copyright is shown.  All other rights are reserved.

Disclaimer:  The views expressed in the above article do not purport to represent the views of any professional association or the views of any employer