Audit methodology and the current environment

The process diagram below illustrates how the work of member firms and Grant Thornton combine in a process which enables member firms to deliver audits of the highest quality.

In the late 1980s, Grant Thornton acknowledged that a global audit methodology was needed to drive consistent application of auditing standards worldwide. Through the years, Grant Thornton has invested significantly in developing and maintaining this global approach and the technology and training that supports its application. A global system of quality monitoring was also developed and implemented long before the ISQC1 requirement.

In 2007, Grant Thornton recognised the need to further enhance this global audit methodology, including the need to develop and deliver global training on international auditing standards and the updated methodology. The implementation of this updated approach commenced in 2008 and provides direct linkage between identified financial reporting risk, internal controls that address the risk and audit responses to the risk.

Grant Thornton develops and delivers worldwide training with a focus on audit risk assessment (including fraud) and response. Training modules delivered over the last two years have covered many aspects of auditing that are affected by the global financial situation. Examples of training modules include complying with professional standards, achieving global consistency, client acceptance and reacceptance, independence, risk assessment (including fraud), responses to risk, audit documentation, unique aspects of auditing revenue/inventory/accounting estimates and journal entries, and quality control processes and procedures. These sessions were led by our worldwide experts, who travelled to each region to develop the people selected to train others within their firm.

While many entities have been affected by the global recession, the financial reporting risks arising from the global economic downturn differ from entity to entity. Grant Thornton’s audit approach facilitates the audit team’s judgment as to how the recent economic situation impacts the specific audit situation such that a tailored risk identification and response can be achieved. Member firms have also provided their auditors with guidance based on domestic conditions and concerns.

The economic crisis has affected all parts of the world and has impacted all business sectors and industries. Whilst much of the publicity has focused on financial institutions, audit issues related to the financial situation are not limited to that industry or any other. Our global audit methodology is based on a risk/response approach which operates across all industries. As part of the audit methodology update discussed previously, audit processes and procedures were updated to reflect ISA 600 (Revised and Redrafted), Special Considerations – Audits of Group Financial Statements (Including the Work of Component Auditors). The rigour in this standard is reflected in our audit methodology and will help member firms manage the risks arising from the impact of the global economic downturn.

A financial downturn poses specific challenges for auditors. Grant Thornton has distributed internal briefings on various topics related to the financial environment, including: 

• at least quarterly communications about audit considerations in the current environment 
• audit and reporting technical guidance updates and reminders on the challenges posed by auditing in a period of financial difficulty 
• new or revised training packs for use by member firms 
• in respect of valuations and carrying values: 
• use of an expert 
• clarification about acquisition date fair value 
• technical documents on impairment considerations in financial instruments 
• effects of events after the reporting period on valuation and impairment 
• the impact of IFRS 8 Operating Segments on the reporting of goodwill impairment tests.

In addition member firms are sent a summary of the results of our most recent internal quality inspection reviews, so that it can be used to inform messages from member firm management and to give direction to member firm training.