There may be errors in spelling, grammar, and accuracy in this machine-generated transcript.
Abdullah Mansour: Welcome to another episode of Audit Smarter. I'm your host, Abdullah Mansour. And with me is Sam Mansour, CPA and audit expert. And today we're tackling the big one, the most common audit pitfalls and how to avoid them. Sam, let's dive right in. What are the most common mistakes you see auditors make over and over again?
Sam Mansour: Yeah, [00:00:30] I mean, I appreciate you having me. Uh, and, uh, I'm excited to go through a lot of this, even though it can be maybe a little bit more on the technical side of things. Um, a lot of these issues that we're going to cover today have been, you know, just things I've seen throughout my ten, 15 years of, um, 10 to 15 years of auditing in and out, doing different consulting and auditing and different types of, you know, engagements, but predominantly audits. Um, seen a lot of pitfalls, I would say [00:01:00] some, you know, some really good areas to pay attention to later on in, um, this, uh, podcast series, I know we're going to dive into some of these areas much deeper. So think of today as kind of more of a, an introductory piece, and then we'll dive in as we go. Uh, so to answer your question, just jumping in, uh, I would say the first one would be the, you know, the risk assessment side as a as a common pitfall, people see risk assessments as kind of more of a [00:01:30] check the box, not really a, um, value add to their audit. You know, it's something they say, okay, well, I just got to do this because it's part of what I'm expected to do. I have to fill out these risk assessments, but they don't really pay attention to them, uh, as they should. But but the risk assessment is really the foundation of the audit itself. Um, yet again, it's often treated as a checklist item.
Abdullah Mansour: Okay.
Sam Mansour: Yeah. So a lot of auditors, I mean, they [00:02:00] don't really conduct like meaningful walkthroughs or ask the hard questions when they're doing the risk assessment because they just they take a look at it. Maybe it's rolled forward from the prior year update a couple little things. Um, but that's it. They just leave it alone. They don't really conduct meaningful walkthroughs and they don't ask those tough questions, maybe of the client, of the team members, you know, um, they spend maybe less time than they should in there. So without fully understanding the client, their controls, their systems, risks, [00:02:30] the rest of the audit could arguably be built on some level of guesswork, especially when you're talking about over year over year, uh, if you're not revisiting, especially if it's a recurring audit, some of those key areas, uh, things get missed. And if it's a new audit, you know, they tend to be sometimes a little bit better because we're paying more attention the first year. However, we're fresh and we're brand new to this client. And so we're starting from like a blank slate, [00:03:00] which again, it's good because you're having to think about everything from scratch. But it's also bad because you're trying to collect a massive amount of information into your risk assessment and into your considerations. So sometimes there's things that you miss where maybe like in the coming year or year or two, three years, your four year, two year, three or 4 or 5, you already have a familiarity with the clients. When you look at these risk assessments, it's easier to kind of fill in maybe some of the gaps. But sometimes people can become become become complacent. So again, we have a whole podcast [00:03:30] where we're going to dive deeper into this. But but just the point with this is risk assessments. Risk assessments. Risk assessments don't treat them like a checklist thing. Um, spend a little bit just slow.
Abdullah Mansour: Just slow them down and take more time.
Sam Mansour: Absolutely. Yeah. And again we'll dive into that later. But yeah.
Abdullah Mansour: Well that's a great overview. Um, let's focus on on one of those risk assessments. Why is that such a common pitfall?
Sam Mansour: Um, well. Let's see. I mean, you [00:04:00] know, let's take the maybe the meaningful walkthroughs, um, and asking some of those hard questions. You know, if you're not conducting, uh, walkthroughs in a way that, you know, it's challenging you mentally, you're thinking through it. You know, if you just say, hey, look, I got to do walkthroughs because I got to do walkthroughs. So you go out there, you do some quick walkthroughs, document it and come back. It's kind of a more of a shallow look. You're not really doing a good job at more of an in-depth [00:04:30] walkthrough. You're not taking your time with it. So, you know, if we were to dive a little bit deeper into the risk assessment component there, um, the walkthrough piece, you could slow it down. You could involve maybe more of a less senior person and a more senior person. Connect them together to conduct the walkthroughs, you know, together as a training activity for the for the, um, for the staff person. The lower, you know, the entry level person, I'd say, um, yeah, that that would add some [00:05:00] more meaning to those walkthroughs.
Abdullah Mansour: Okay, that totally makes sense. And you kind of mentioned would would jump into that a little bit more in a later episode. So um, you also mentioned documentation. Why do so many auditors struggle with that?
Sam Mansour: You know, I mean, documentation, it's kind of a I don't know if you want to call it a double edged sword, but, you know, on the one hand, it's necessary because we have to memorialize what we're doing in our audit work. On [00:05:30] the other hand, people see it as, you know, it's just boring paperwork and it just takes hours and hours and it's not fun. You know, you go have a boring. Yeah, exactly. You have an interesting conversation with a client, and, you know, you're talking about all these interesting things. And now you go back and sit down at your desk and it's like, oh, shoot, I have to write it all up. Um, that can be, you know, more the, the other side of that, you know, double edged sword where it's just boring. But if you don't have it, you don't have that good documentation. You're [00:06:00] not leaving someone in the future. A trail that might be a person that's picking up, you know, some of the audit work that you're doing. Uh, the other problem is, and I actually find this to be the bigger issue. You're not leaving yourself a trail for the future. You know, you do 10 to 20 audits in a year. You come back next year to that same client, and you're like, maybe you're like, foggy on on some of the things that happened. And so like I've always found that that I'm just I found that I'm hurting myself [00:06:30] more so than anybody else by not maintaining good audit documentation.
Abdullah Mansour: And that makes sense. The more clients you have, you know, I'd imagine you'd go back, you're like, oh, shoot, what do we cover with them? But if you have documentation and notes on what what you did, you can go back and refer to those. So that'd be a good is that kind of what you're getting at there?
Sam Mansour: Yeah. Yeah.
Abdullah Mansour: I mean to reference something if you, when you go back and.
Sam Mansour: Yes. I mean, and, you know, like I'm suggesting, like we're thinking about it like, you [00:07:00] know, we're in year two of the audit and you're referring back to what you, you know, the audit file from year one. Oh, yeah. But even like, let's say in, in, in the same year, you could be getting review comments from a reviewer that says, hey, when you're out in the field and you documented this, um, what was this in reference to? Or what did you look at? And if your documentation is vague and loose, you're like, crap, I can't remember. Like, if I'm reading this thing, it's not even jogging my memory. And that's just kind of more from like a practical standpoint. [00:07:30] But then there's also standards. You know, if another auditor were to come in, if you had a peer reviewer looking at your work papers and if you have a hard time following it and they're a fresh set of eyes, they don't really know the client, they don't know your firm. They're coming in here and they're taking a look at these work papers for the first time, and they're reading, if you can't understand it, how the heck are they going to understand it? And if they can't understand it, what is the potential consequence of that to the firm and to that that engagement?
Abdullah Mansour: Yeah. So it sounds [00:08:00] like it's absolutely critical in any any audit is really good documentation.
Sam Mansour: And it's a huge pitfall. So right. So we're talking about risk assessments treating them like checklists. Big pitfall. Bad documentation big pitfall. I mean as a reviewer of work papers over the years, bad documentation is just like it's such a hard habit to to get trained into people to do. Right.
Abdullah Mansour: Yeah, it's painful if you don't do it right. That totally makes sense. Well, kind of on that same track. [00:08:30] Let's talk about checklists. You said teams often rely heavily on them. Why is it such a problem?
Sam Mansour: Yeah. You know, sometimes checklists can maybe be more damaging than they can be beneficial. Because if you just sit with a checklist and you just put your head down and you're like, check the box, check the box, check the box. Check the box.
Abdullah Mansour: Yeah.
Sam Mansour: And, like, you know, I mean, if you were to, like, look up and look around you, you would see [00:09:00] maybe I'll say fraud everywhere. You know, that's kind of an extreme example. Um, but the idea is that some people are just so buried in these specific sentences and these specific checklists, and they just do that work and they leave. The problem is that maybe there's some other critical things that you are not paying attention to because you're so buried in the checklist. And and what happens.
Abdullah Mansour: Really thinking.
Sam Mansour: Those things. Exactly. You're not thinking.
Abdullah Mansour: Yeah.
Sam Mansour: So [00:09:30] so blindly checking the box without, you know, adapting to the client's unique risks. Um, you're not really doing a good audit. Um, you're just going through a script, and we know what it's like when people just read off of scripts, right? It's automated. It's it's not thought out. It's not meaningful. And that then generates a lot of risks, right? So checklists are absolutely necessary because you don't want to have an audit where you're missing critical checklists. You don't want to have an audit [00:10:00] where you have those checklists and you're filling them out incorrectly. Okay. So you got to like have to have the right checklists depending on the type of engagement, the industry, the risk level, you have to pull in the right checklist. We have to fill them out properly. But then you have to not forget to look up every once in a while and think from a logical perspective, what's going on here? Right.
Abdullah Mansour: That's kind of similar to the documentation. They're very critical. You just have to make sure to stop and think through through what you're trying to accomplish.
Sam Mansour: Absolutely. [00:10:30]
Abdullah Mansour: Is that kind of the kind of the related. But yeah they're both. Yes.
Sam Mansour: So you can kind of use it as, like a, as a really good point of reference. So like let's say for example, you're going camping and you know, you're like so you don't, you don't want to go out into the woods and forget something. So you pull up your checklist and you're like, okay, I need to take water, you know, wood for burning fire, uh, like, if you want to get even more like, specific, like, let's say you're packing a bunch of stuff to take food wise and you're making hamburgers. What if you forget the mayonnaise and ketchup? If you like that on [00:11:00] your burger?
Abdullah Mansour: Oh, yeah.
Sam Mansour: They get the buns and you get the patties and you forget. You forget the condiments. Um, that can happen when you're trying to get all this stuff pulled together. So the checklists are good because it tells you, hey, don't forget this and this and this and this and this and this and this and this, but but but you got to keep it. You got to remember. Right. There's there's some sometimes some other things that go along with this that you need to like, for example, let's say it's not a checklist, but you're there's a rafting adventure, you know, in the area that you could go on you, you have to [00:11:30] book in advance. But if you're just thinking about the checklist and filling your cooler, you're forgetting about some pretty cool opportunities out there. And in an audit perspective, what's happening is you are following the checklist, but you're maybe missing out on critical areas where something could be blatantly in front of your face. Again, let's say fraud, but you're just not not looking at it, right? Because you fill out the portion of the checklist, but you're just not thinking beyond it.
Abdullah Mansour: Sure, that makes sense. Just hyper focus on checklists and nothing else. You want to make [00:12:00] sure you're. Yeah. Can I making sure everything else is also going well. What about on the kind of on the on the client's business? How can auditors make sure they actually understand, uh, a client's business? Because I'm sure that's critical, right? And doing audits and.
Sam Mansour: Yeah, I mean, at the very base level, you know, we hear this language understanding the industry, the environment and things like that. That's kind of common, uh, textbook type, uh, answer here, but, [00:12:30] but but diving a little bit deeper, what that kind of what it needs is not just asking base level, surface level questions, but really asking challenging questions. Right. Kind of sometimes there's questions, especially for newer auditors that we feel maybe a little bit uncomfortable to ask because we think, oh, it's too invasive. Or maybe you're starting to kind of push in an area that the client's not wanting to really answer. And so you kind of back off a little bit because you feel shy, right? You feel like, oh, I'm kind of putting them in a weird [00:13:00] place. Um, but you can't be afraid. You can't be afraid to ask challenging questions. You can't be afraid if you hear them say something about their business, they explain a certain point. It doesn't really make sense to you to ask them another question about that and say, I didn't. I didn't get it. Like, like, could you explain that more? Because maybe they'll breeze over it real quick. Maybe. Maybe it's something that they're real expert in, but they and they think everybody else is. And so they just throw it out real quick. But then you feel like, well, I feel like [00:13:30] I'm too I don't want to look dumb. So I don't want to ask the question. So then you're not getting that in-depth understanding. And that's a very big pitfall.
Abdullah Mansour: I can see how that can be uncomfortable, maybe pushing on something that they're kind of avoiding potentially. How would you go about that if they're kind of avoidant? I guess it probably takes a lot of confidence to continue that conversation and, you know, dig deeper.
Sam Mansour: Yeah. I mean, sometimes within the conversation, like, let's say you're talking to them for half an hour and you like, and you're following along [00:14:00] with some questions that you're trying to ask and they're just not really giving you, like you've asked the question once and you've asked it twice. And they're just not they're not just not responding right. They're just not giving you what you want. What I'll tend to do is I'm not going to push them more beyond that, because for some reason they're just not giving me an answer there. I'll write it down and then I'll just have it on a list of other questions. So maybe maybe it's something that's kind of like a no brainer that I should know about their their business, their industry. I'll try to go and maybe research it. I'll try to go and ask other people in the [00:14:30] organization about it, maybe ask some people on our team that have been with the client in the past, um, and say, hey, do you guys know what's going on with this? And so I'll try to get some context around it and I'll see if it's important, because maybe it's not an important question, like why push on something that doesn't add value? That's not critical. And maybe you just really want to know about it, but it doesn't make a difference, right? So you kind of do a little. So just step away from the interview with the client and kind of reassess the questions that you're asking and how needed [00:15:00] they are. Sometimes you'll find that it's like, I actually need to to really get this answer from this client. And they are the person that specifically has this, the answer to this question, because I've asked other people and they're like, no, you got to go talk to this guy like he's the only one that knows.
Abdullah Mansour: Yeah.
Sam Mansour: Sometimes it's kind of interesting because if no one else in the organization seems to know the answer, if I'm if they're not providing a clear answer to me, to me, it elevates the risk significantly. It's like, why is this a vague area that they are they.
Abdullah Mansour: Yeah. [00:15:30]
Sam Mansour: Why are they guarding it maybe. Right. Uh, and instead of taking it as a they're trying to lie to me. They're trying to deceive me. Take it more as a maybe it's just. Maybe it's just something that that's not a maybe it's just a weaker part of their organization that they don't want to. Maybe they don't feel comfortable sharing because they don't. I'm sure they're not going to feel comfortable sharing everything. So. So there might be maybe there's no malicious intent here. Maybe it's just they just don't want to go through it. But I need the answer. So after I've kind of done a little bit of [00:16:00] investigation outside of it, and let's say I do come to the conclusion that, yes, I really need to get this answer. I'll go sit down with the client and say, hey, look, you know, I appreciate you answering all these questions. I know it's a lot. I know we've asked for a lot of documentation. You know, I know we've taken up a lot of your time, you know, be acknowledging of that. Like, I get it. Yeah. But here's the thing. I need a lot more clarity on this specific point. Right. So you're not including other points. You're coming fresh and you're just being very clear with them. I need the answer to this [00:16:30] one specific question. I, I had a guy one time I was trying to audit, I can't remember what section it was. And and I said, you know, could you give me, you know, support for this, this one number? And he's like, yeah, sure. He didn't give it to me. So I went back to him. Can I get support for this? And he's like, yeah, yeah, sure. I still didn't get anything from him. Finally, we're like towards the end of our field work week, and I. I say, I gotta, like, I gotta see this number. And I was, I was like a year or two into auditing, so I was pretty unfamiliar.
Abdullah Mansour: You're fresh. Yeah.
Sam Mansour: How to deal with this stuff? But he. [00:17:00] So he brings me a piece of paper, like, it's like a grid, uh, printed out an Excel grid, um, and or chart. And he puts it down on the conference room, conference room table, and he points at it, hovering about 2 to 3in from that page, and he's like, it's right there. And so I'm like, I'm looking at like 100 cells. And I'm like.
Abdullah Mansour: I.
Sam Mansour: Still don't see this this number.
Abdullah Mansour: Yeah.
Sam Mansour: And so I like looking up at him. I'm like this. This is crazy. I didn't say that. I'm like, this guy's still not giving me an answer. And so then I just [00:17:30] said, like I wanted to say in my brain, I'm like, could you, like, just literally just put your bridge? Put your finger down two inches. Like, just touch the number.
Abdullah Mansour: Not touch the paper. Yeah. Yeah.
Sam Mansour: Yeah. Um, I honestly, I can't remember how I ended up finding what I needed, but it wasn't on that sheet. Uh, but the point is, there was a problem with that account. He wasn't willing to kind of kind of be clear on, on on how he was coming up with these numbers. Ultimately, it was just it was just that account was just a mess. He didn't have good support for it. He didn't want to give me a clear [00:18:00] answer. It was probably a finding at, you know, after we figured that out. But that's kind of what I went through with him. So every time I think about those evasive answers, I think of that example. He's just hovering over that sheet. He will not put his finger down. Just so, so strange.
Abdullah Mansour: Yeah, but overall that makes sense. You kind of want to push it to a point where if it gets uncomfortable, you take a step back, you do your own research, and at the end of the day, you have to come back potentially to that same person and just ask them point blank, right. At the end of the [00:18:30] day. So that is that a good, uh, I guess, recap of that, would you say?
Sam Mansour: Yeah, 100%. Just take a step back, think about it, come back in fresh. And if you need to be clear of the client, be clear with them. Um, sure. And don't challenge them on dumb questions. And the way you would know that is go ask your team. Hey, especially ask, you know, upper levels of the team. Should we be asking this? Should we be pushing on this? Sometimes it's not a risky area. I mean, even if even if it was something wrong there, it wouldn't make a difference to the [00:19:00] audit. So let's just, like, just let it go. Like, you can only burn through so much of the client's tolerance. You know, eventually they're going to.
Abdullah Mansour: Be like, yeah.
Sam Mansour: Asking so many dumb questions like, you don't need to know all this information. And then they and then they just stop answering important questions. And we don't want that.
Abdullah Mansour: Okay. That kind of burnt out. Yeah. So they kind of.
Sam Mansour: Understand their business like sorry. Back to the audit piece.
Abdullah Mansour: Oh sure.
Sam Mansour: What this then does is it prevents you from getting to know their business. Right? You're an auditor. They don't really want you there. Probably. So you need to be able to understand their business. And you can't [00:19:30] come in as a as a fresh rookie with no context. And just ask them dumb questions and push really hard. You have to be smart about it and you have to you know, sometimes it could be evasive, evasive, and you have to identify if you need to keep pushing or not. So. So that's all in the effort to to get a good understanding of their business.
Abdullah Mansour: Yeah. Totally makes sense. What kind of kind of the same track. But switching gears a little bit, what would you say to a senior or a manager who wants to improve their [00:20:00] audits starting today?
Sam Mansour: Yeah. And probably the number one thing here is to think like a reviewer. Um, I have found there's a big difference between thinking like a prepare and thinking like a reviewer, because when you become a reviewer or let's say you go from a staff level to a senior level and you start to review other people's work papers, you really start to see like sometimes you're like, oh, shoot, I can't believe I was doing that. Like, that doesn't make any sense. You know, like it's so.
Abdullah Mansour: Yeah, yeah. [00:20:30]
Sam Mansour: So when you start to kind of review work papers, you start to kind of understand why some of that documentation is supposed to be done a certain way, and why is that important that we do it that way. And I think you start to have more of an appreciation for it.
Abdullah Mansour: So you're kind of putting your shoes, uh, sorry. You're putting you're putting yourself in someone else's shoes, essentially, and kind of looking at it from the reviewer side instead. Is that.
Sam Mansour: Yes. Yes. And so sometimes it's really difficult to kind of get into that mentality unless [00:21:00] you're, you're, you're having to go through the pain of reviewing somebody else's work papers and seeing it. Oh.
Abdullah Mansour: Okay, I see.
Sam Mansour: But what you can do is you could look at the review comments that you are getting and you could say, you know what? Like I keep getting these review comments on this specific area. They seem to think this is really important and just kind of think, okay, maybe go talk to the reviewer. Why am I getting these review comments instead? Just responding back to them and shooting them back, you know, try to understand why they're giving them to you. Try to understand why you're getting them over [00:21:30] and over again if you are. And then when you go out and do the work the next time, think like a reviewer. Think, okay, when that person reviews my work papers again, or somebody else, what are they going to think about how I'm documenting this. That's a big one.
Abdullah Mansour: Okay.
Sam Mansour: Another one would be, you know, slowing down the planning phase. I think a lot of us tend to just like we're getting done with one audit, we're jumping into another one. Planning maybe is in the middle and we're just like, oh my gosh, we're wrapping up the prior engagement. We gotta hurry up and get into the new one and just boom, jump into [00:22:00] the next one.
Abdullah Mansour: Just moving quick.
Sam Mansour: Yeah, totally. Get it. Um, but that planning phase is really, really important because if you set yourself up really well, then the rest of the audit can go a lot easier. But it sometimes it kind of feels a little counterintuitive. Uh, one kind of example that comes to mind. I think it's great. It's like a bow and arrow. You pull it back before you shoot it forward. And so there is a little bit of this, like time [00:22:30] when you're kind of in that planning stage and you're and you're getting it set up properly to then have a really good shot going forward versus just quickly pull back and then just let go. I mean, then your accuracy goes down significantly.
Abdullah Mansour: Kind of a slow down, maybe a slight pause. Thinking through things, making sure you're on track with everything. Okay. Yeah.
Sam Mansour: Yeah. I mean, the biggest danger with this, too, is that you. You don't think it through well enough. You don't plan it out well enough. You go out into the field, you do your audit, you come back, and then a reviewer [00:23:00] comes in there, or a partner or whoever, and they're like, what about this? What about this? What about this? What about this? What about this? What about this? And you're just like, oh, shoot. What happens then? And a lot of cases, you have to go back and call a client. They are not happy about that.
Abdullah Mansour: Oh, man. Yeah.
Sam Mansour: We're a couple of weeks after field work. The the partner or reviewer is looking at this stuff. And now we're getting these questions. And now we're going back to the client after we've already asked them to pull all this documentation, then all these inquiries. And now we're having to go back and pull another sample. We're having to [00:23:30] do additional inquiries. They're just kind of like what is up with this. Like come on.
Abdullah Mansour: Yeah, I'm sure that's not a fun call to make after you've already done all that work and met with them.
Sam Mansour: Exactly.
Abdullah Mansour: So back in and call them.
Sam Mansour: Yeah. It's just it's a gut wrenching feeling for the person that has to go back to the client. It's not good for the client relationship. So slow down in the planning phase. Ask good questions. Don't rush it. Uh, it will help. It'll be a good investment. Now, um, for the future. And then? [00:24:00] Then through to the third, uh, part of answering your question. So your question is, what would you say to a senior or manager who wants to improve their auditing today? So again, think like a reviewer, slow down in the planning phase. And then number three document as you go. Document as you go. Document as you go. Some people a lot of people like to do a bunch of stuff and then document or do a lot of stuff and then and then like documentation is like, yeah, I'll just get to that when I have free time. [00:24:30] That is brutal because you do like so many different things. And then you're having to document what happened like that is so hard to remember. All the little pieces. And then when a reviewer is looking at your work or you're coming back around to your work in the future, it's just it's it's just not as detailed as it needs to be. And so you document as you go, you're going to catch all those little pieces, and you're going to be able to incorporate them into your documentation. You're going to have you're going to have a it's going to be a much easier to review [00:25:00] it when you come back in the future, whether it's yourself reviewer, a peer reviewer document as you go.
Abdullah Mansour: That's all that makes sense. As we discussed at the beginning, when we talk about talked about documenting, it can be something that maybe is kind of daunting and maybe kind of a boring task. But I can see that if you if you do as you go and it's kind of ingrained in your process and it probably it's probably less daunting, less boring if it's something you just automatically do as you go. So that totally, that totally makes sense.
Sam Mansour: It's a good habit to get into. I would say, [00:25:30] and I think a lot of this is, you know, it relates to habits. And so, um, not, you know, having, good habits from the start where you're documenting as you go. Um, thinking like a reviewer as you go. Slowing down, slowing down. Engagement by engagement. It just it just sets you up for a much better, um, engagement, a much better experience, much better experience between you and your coworkers, much better experience between you and the client. Uh, overall, [00:26:00] it's just it's a much better experience for everybody. But a lot of times I find and you kind of talk about habits, um, I would actually throw that in as another common pitfall bad habits. They don't tend to change a whole lot going forward. Um, so so they're you're better off establishing them from the very beginning. Um, I knew there's this girl I worked with. She was just really meticulous about what she did. And I remember [00:26:30] thinking I was like, my gosh, like, why is she so like, like, nitpicky about everything? And I'm the thing specifically remembering is, you know, she had a sheet where she would list out all the engagements and she would say, planning, done. Planning, not done. Planning done. You know.
Abdullah Mansour: Was she a newer auditor or more?
Sam Mansour: No, she was more senior.
Abdullah Mansour: Where was she? Yeah. Yeah.
Sam Mansour: And I and I was more inexperienced at the time. And I was like, looking at this and I was like, why is she to write all this stuff down, like. And why in that level of detail?
Abdullah Mansour: It's crazy. Yeah.
Sam Mansour: She should know that [00:27:00] we scheduled field work. It's already on schedule. Who cares? But she was.
Abdullah Mansour: Just.
Sam Mansour: Very, you know, almost like obsessive compulsive about documentation. But then I come to learn, you know, years down the road, that when you're managing multiple engagements, it's like, shoot. Did I send them this, this sample? Uh, did they get this? Did they not get it? And then let's say let's say you sent out all these requests to the clients. Did they respond? You know, did they respond to all those pieces? When one engagement, when you send out a bunch [00:27:30] of requests, there could be 50 requests across three engagements. That's 150 requests just in the initial stages. How do you know who responded to what? Right.
Abdullah Mansour: Sometimes. Yeah. Yeah.
Sam Mansour: Sometimes they're responding via email. So if you have bad habits, if you are not organized and today on a small engagement because you think maybe it's too it's too excessive, you shouldn't need to worry about that because it's just 1 or 2 engagements. What happens is then it rapidly goes from, you know, to five [00:28:00] to 10 to 15 and and at one at what? At one point in time do you say, I'm going to change my habit and become more organized?
Abdullah Mansour: Yeah, yeah. So you kind of kind of starting it at the beginning. So those, those habits at the beginning of your of your audits and basically your career.
Sam Mansour: Yeah, I tell people and I've given a lot of talks at universities and things like that. And the biggest thing that I always pitch to them is the soft skills. Right. And talking about like the theme [00:28:30] of these, you know, common audit pitfalls, I would say a lot of times it's the soft skills because Is the technical stuff is not usually rocket science. Like that's. I don't really find that's where people get tripped up. If you're going to like let's say pick a sample of 25 and you're doing internal control walkthroughs or testing and you're looking or you're doing internal control testing and you're looking for signatures, prepare and reviewer on a document. I mean, okay, fine. Pull up the document. Do I have a signature on here? But prepare. Do I have a signature [00:29:00] on here of a reviewer? Is the document appear to be filled out correctly? Like, it's just not that complicated. It's someone.
Abdullah Mansour: Yeah.
Sam Mansour: It doesn't come from the audit world. I can sit them down for ten, 15, 20 minutes and say, look, look for these signatures on this page. Look for these dates. Look at these dollar amounts. Make sure it matches our sample, our general ledger. Not super complicated, but what gets what gets everybody. And this is what I talk to a lot of these colleges and universities. Is that the soft skill side of things the organization, [00:29:30] the communication. Uh, these are the types of things That that we don't think about them as a pitfall. Like when we're thinking about pitfall, we're talking about documentation, we're talking about risk assessment, we're talking about stuff like that. But but we don't really talk so much about organization, you know, because it almost kind of seems.
Abdullah Mansour: Yeah.
Sam Mansour: It's a no brainer, right?
Abdullah Mansour: Kind of an obvious one. Yeah.
Sam Mansour: But exactly. But what I have found is that most people have a lot of problems [00:30:00] in the organization phase. Um, like let's give an example of you go out and you conduct, let's say you're conducting for inquiries in a row with four different clients, for different team members of the client, and you're and you're taking notes. I actually find this about myself too. And let's say you're just kind of as they're talking, you don't want to be sitting there writing the whole time or typing on your computer.
Abdullah Mansour: I've had that before. It's kind of awkward to do that.
Sam Mansour: Yeah, exactly. So like, let's say you write some quick little comments down on your notepad and you go into [00:30:30] the next interview and you write some more notes. After the fourth interview, you come back and you're trying to read through. Let's say after three and a half, four hours of these inquiries, you come back and you're trying to read your own notes and you're like, I don't know what the heck I was saying here, you know, three hours ago.
Abdullah Mansour: Yeah, I've done that before. Yeah.
Sam Mansour: Exactly. And so in an audit, like in a normal situation where you're just chatting with coworkers and trying to learn something, you just go back and ask them. But when you're doing an audit with a client, [00:31:00] you can't. You can, but you don't want to be going back to them. And hey, I forgot what you said about this, you know?
Abdullah Mansour: So yeah, it doesn't feel very professional or like you're on top of it. Yeah.
Sam Mansour: Exactly. So like when we're talking about common pitfalls, we're talking about good documentation, like what's inside the documentation, but what about our ability to collect information to then properly document it. And that could simply be we're writing on a notepad and our handwriting, [00:31:30] the organization of that page that we're taking notes is not structured in a good way right now. Nowadays, of course, like what I like to do is, you know, if you can, uh, get on like a Google meets or zoom call hit record, I will assist and take notes. Uh, then you have that. But what I also like to do is have a notepad and still write things down, some critical things, because I will summarize what [00:32:00] it wants to summarize. If you're using AI and you're.
Abdullah Mansour: Using sure.
Sam Mansour: If you're using these transcription tools. So maybe transcribe it, pull it out into text, and then use AI to give me a write up of this. Show me, and it'll highlight some really good things. But if you take some notes and you're organized that way, then you'll look at the you can look at the transcript and say, okay, it didn't really highlight this. Why not? And sometimes I'll go back and ask AI. Why didn't you highlight this in your your product? And sometimes it'll say kind of like oh yeah, I'm sorry. [00:32:30] I guess that is an important thing. Then.
Abdullah Mansour: So a combination of AI and notes kind of quick, quick notes like almost like bullet points. And then using AI, the combination of those two is what you found to be effective.
Sam Mansour: Yeah. Depending on the engagements, if you can record the conversation, if you can transcribe it, if you can use AI, you know, some clients might not feel comfortable. There might be some standards related to certain industries. Um, you know, but if you can. Yeah. I mean, the point that I'm trying to make here really [00:33:00] is organization, right? Communication. These types of things are huge pitfall in an engagement beyond the technical stuff. Um, I was training somebody once, um, and I said, look, you know, if you're going to come in and learn from me, I need you to be writing things down on a notepad so that you can remember what we're doing. And then this person was fairly new, uh, and they were kind of, I want to say a little arrogant [00:33:30] because they were kind of arrogant. And, um, and they come into my office and I'm like, hey, where's your notepad? You know, we talked about this and there's kind of a soft skill, something to do. And she was like, don't worry about it. Like, I have great memory. I'm gonna be fine. And I said, okay. Like, we're gonna be covering three different things. They're brand new to you, and I might be going quick. And she was like, yeah, not a problem. So we go through them. And of course, even though she didn't have her notepad, I wasn't trying to punish her. I still said, am I going too [00:34:00] fast? Do you understand? Do you have questions like just stopping every 5 or 10 minutes or if not more?
Abdullah Mansour: Yeah, just making sure.
Sam Mansour: Really trying my best. She leaves and that afternoon she comes back and she has tons of questions.
Abdullah Mansour: Oh, geez.
Sam Mansour: That's painful because it's like, how could you consume that amount of knowledge in that short of a time with having very little context behind it?
Abdullah Mansour: Yeah, that's that's very difficult to do.
Sam Mansour: So when [00:34:30] you're sitting down with a client and you're trying to document things eventually in your work papers so that a reviewer can look at it, you can look at it next year, a peer reviewer is going to look at it before we even get to that point. You have to be able to have collected that information properly. That comes back to organization. So it's a it's something like in this, when you were asking me about common audit pitfalls, I didn't want to lead with this topic because again, people are looking for [00:35:00] the hardcore answers. They don't like they consider. Sometimes people consider this fluffy. Uh, in terms of like, it's, you know, how important is this? But to me, if people can't take good notes, if they can't, um, you know, kind of remember what they did in that inquiry to then go and transfer it into a digital document. Um, there there's a, there's a, there's a gap there. Right. I don't like it when I go into a meeting with other people, especially staff [00:35:30] and team members. And I and I sit down in a conference room table and I see people without notepads. I'm like, I don't understand how that makes any sense, because we're here for an hour or more and you don't have anything to write on, but you're going to remember everything and you're going to do.
Abdullah Mansour: Yeah, it seems it seems basic, but very necessary. Very important.
Sam Mansour: Yeah.
Abdullah Mansour: Well, Sam, can you share a story where avoiding these pitfalls, uh, really made a big difference?
Sam Mansour: Yeah. I mean, I would say that, [00:36:00] you know, across the board, these pitfalls that we've gone over today, um, they're not just ones that I've said, let's go pull out an audit textbook and, and, you know, there are things that I have seen firsthand that have really like, um, been either an issue and that we have had to go back to the client to ask questions. And the client hasn't enjoyed that. Peer reviewers might have asked about them. And maybe it was like, kind of like, this is a little uncomfortable because kind of sort of, you know, you know, although, like we were fine on the peer review [00:36:30] side, we never had any issue with that. But still, it's just like in that moment you're like a little bit of panicking.
Abdullah Mansour: Um, yeah.
Sam Mansour: So, you know, so I would say as far as, like a specific story, um. You know, on the documentation side of things, um, I don't really know if there's any one story. It's just over the course of, you know, probably being in the industry for about 15 years, I can't tell you how many times I've had to go back myself or [00:37:00] team members have that. I have, you know, reviewed their work papers on where they have had to go back to the client and ask for additional documentation. And then sometimes it gets scary if there's like a fraud risk at the client and the document and the documentation around it is not strong on our side, we haven't really buttoned it up. Um, that can be kind of concerning. So, you know, specific instances there. Uh, I mean, one that I [00:37:30] could think of related to the, the risk assessments. Um, there's a firm that I, I know the partners there really well. Uh, they were auditing a small nonprofit, ended up in the newspaper, um, 5 or 6 years ago or more. And, uh, they missed fraud. So the bookkeeper there had, um, committed fraud for years, you know, for 4 or 5 years. You know, I think initially she stole.
Abdullah Mansour: That's a long time.
Sam Mansour: Yeah, I think she stole, like, $800 [00:38:00] in the first year. She got a little ambitious, and next year is a couple thousand. And I think eventually in towards the year 4 or 5 or however long it lasted, it was like 20, 30, 40,000. I mean, she was having her electric bills, um, charged. Uh, sorry, her mortgage was being paid directly out of the bank account. Oh.
Abdullah Mansour: Really?
Sam Mansour: Because because because just like they were paying their mortgage on the building that they were at the nonprofit her her mortgage payment look the same. Like if you were to go look in there, you'd see a mortgage [00:38:30] payment, you know, maybe the first week of the month for the building, but it's not going to be like very descriptive. And you'll see another transfer out towards the end of the month, which maybe looks like a second mortgage payment. You couldn't tell, but really it was going to her house and.
Abdullah Mansour: Oh I see. Interesting. Do you know how you would how do you know how they caught that? Eventually?
Sam Mansour: Um, in that specific instance, if I remember correctly, another auditor came in. They started auditing. Auditing it. They, um, they [00:39:00] were new to the client. So the other firm had audited the client for years. This firm was new to the client. And so they were starting fresh with their risk assessments. They were starting fresh with their documentation. They were starting fresh with the checklists. And because they took that, not just rolling it from the prior year as the other firm did, they had this fresh perspective. Uh, and they didn't just stick rigidly to the checklists.
Abdullah Mansour: Oh [00:39:30] I see okay.
Sam Mansour: Yeah. Because like for example, let's say, you see you're like skimming through the bank statements and you see two of those mortgage payments, right? Uh, they probably asked. They said, what is this? Why are you why are you paying the mortgage twice a month? Right.
Abdullah Mansour: Oh, I see okay.
Sam Mansour: Yeah. And maybe the other auditors asked, and maybe that person said, oh, we're trying to quickly pay down the mortgage on this. And we're. So we're doubling our payments per month. But maybe the question then is, well, why are they not the exact same dollar amount? Right. [00:40:00] So it comes back to one of our earlier. Yeah, one of our earlier points about understanding the business a little bit more, asking deeper questions, because I always tell people if someone's going to commit fraud, they would have thought through it. Right. It's kind of like they would have looked around here. Looked around there.
Abdullah Mansour: Sure. Yeah.
Sam Mansour: Made sure that that.
Abdullah Mansour: Yeah.
Sam Mansour: If they're going to take this money or they're going to do this, someone isn't just going to easily, you know, it's like a car park in the parking lot. They're not going to drive it off the lot, you know? It's like, of course.
Abdullah Mansour: Kind of hidden. Yeah.
Sam Mansour: Where's the car? You know. So. [00:40:30] So when you come in as an auditor, they know that the organization is getting audited generally. So they're not going to make it super obvious. You're going to have to ask those deeper questions. You're going to have to go beyond the checklist. So to answer your question I think the one firm was very checklist. Put your head down focused. The second firm put their head up a little bit, had a fresh perspective, maybe took a little bit more time in the risk assessment stage and said where are our risks. Dove into some of the areas and it popped up.
Abdullah Mansour: Yeah, [00:41:00] that makes sense. Well, Sam, it's been a great conversation and thank you for sharing your experience and insights. It's been a fantastic episode. And to everyone listening, thank you for tuning in. And, uh, look for our next episode coming up soon. Thank you.
