Performing auditsAs part of Vision 2020, EY has invested significantly in improving our audit methodologies and tools, with the goal of performing the highest-quality audits in the profession. This investment is consistent with EY’s goal to have the leading audit practice in the profession by 2020 and reflects our commitment to building trust and confidence in the capital markets and in economies the world over.
The EY Global Audit Methodology (EY GAM) provides a global framework for delivering high-quality audit services through the consistent application of thought processes, judgments and procedures in all audit engagements.
Making risk assessments, reconsidering and modifying them as appropriate, and using these assessments to determine the nature, timing and extent of audit procedures are fundamental to EY GAM. The methodology also emphasizes applying appropriate professional skepticism in the execution of audit procedures. EY GAM is based on International Standards on Auditing (ISAs) and is supplemented in the Netherlands to comply with the Dutch auditing standards and regulatory or statutory requirements.
The EY auditor is presented with a version of EY GAM organized by topic and designed to focus our audit strategy on the financial statement risks and the design and execution of the appropriate audit response to those risks. EY GAM consists of two key components: requirements and guidance, and supporting forms and examples. The requirements and guidance reflect both the audit standards and EY policies. The forms and examples include leading practice illustrations and assist in performing and documenting audit procedures.
Using technology, EY GAM can be “profiled” or tailored to present the relevant requirements and guidance, depending on the nature of the entity being audited. For example, there are profiles for listed entitles and for those considered non-complex entities.
Enhancements to the audit methodology are made regularly as a result of new standards, emerging auditing issues and matters, implementation experiences, and external and internal inspection results. In 2016, EY GAM was updated to include the new and revised ISAs dealing with auditor reporting, other information included in an annual report and financial statement disclosures. We also enhanced EY GAM by adding guidance to address common questions from audit teams and issues arising from inspections.
In addition, we monitor current and emerging developments continually and issue timely audit planning and other reminders. These reminders emphasize areas noted during inspections as well as other key topics of interest to our regulators, including the International Forum of Independent Audit Regulators (IFIAR). These topics include professional skepticism, group audits, revenue recognition and engagement quality reviews.
EY GAM requires compliance with relevant ethical requirements, including independence from the company we audit.
Our audit engagement teams use technology to assist in executing and documenting the work performed in accordance with EY GAM. Beginning in late fiscal year 2015, EY launched the next generation global audit platform EY Canvas, on a phased basis across EYG member firms globally. The deployment continues and Ernst & Young Accountants LLP will be completed in fiscal year 2017. EY Canvas is web-based, built using state-of-the-art technology to provide heightened data security and allows us to evolve our software to respond to changes in the accounting profession and regulatory environment.
Through the use of profile questions, audit engagements in EY Canvas are automatically configured with information relevant to the company’s listing requirements and industry, helping keep our audit plans customized and up-to-date by providing direct linkage to our audit guidance, professional standards and documentation templates. It is built with a fresh, clear design and user interface that allows users to visualize risks and their relationship to our planned response and work performed in key areas. EY Canvas also enables a linkage for our group audit teams to communicate interoffice risks and instructions so that the primary audit team can direct execution and monitor performance of the group audit. Over the coming year, we will phase out our predecessor audit support tool, GAMx.
Audit engagement teams use other software applications, forms and templates during various phases of an audit to assist in executing procedures, making and documenting audit conclusions, and performing analysis.
EY Helix is our suite of data analytic tools for use in audits. These help our engagement teams analyze a company’s data, enhancing our risk assessment processes and enabling the audit of higher-risk transactions.
EY Helix is already assisting our people to ask better questions about audit findings and evaluating the outcomes. Analytics are transforming the audit by analyzing larger populations of audit-relevant data, identifying unseen patterns and trends in that data, and helping to direct our audit efforts. The use of analytics also allows us to obtain better perspectives, richer insights and a deeper understanding of transactions and areas of risk.
Formation of audit engagement teams
Ernst & Young Accountants LLP policies require an annual review of partner assignments by our Assurance leadership and PPD to make sure that the professionals leading listed-company audits possess the appropriate competencies (i.e., the knowledge, skills and abilities) to fulfill their engagement responsibilities and are in compliance with applicable auditor rotation regulations.
The assignment of professionals to an audit engagement is also made under the direction of our Assurance leadership. Factors considered when assigning people to audit teams include competence, engagement size and complexity, specialized industry knowledge and experience, timing of work, continuity and opportunities for on-the-job training. For more complex engagements, consideration is given to whether specialized or additional expertise is needed to supplement or enhance the audit engagement team.
In many situations, internal specialists are assigned as part of the audit engagement team to assist in performing audit procedures and obtaining appropriate audit evidence. These professionals are used in situations requiring special skills or knowledge, such as information systems, asset valuation and actuarial analysis.
In fiscal year 2015/2016, specialists such as these spent 125,000 hours supporting audit teams of our firm. This amounts to 6.3% of total hours spent on audits by our firm. Their relative spent varies per industry. In audit engagements in the financial industry, for example, the contribution of specialists is high and amounts, on average, to 10% of total hours spent.
The international exchange of professionals is considered essential for high-quality services to international clients well, especially those that report under foreign accounting standards or require knowledge of foreign auditing standards. Professionals in exchange programs make a very valuable contribution to our expertise. During fiscal year 2015/2016, 32 Dutch professionals were employed at other EY locations abroad. A hundred non-Dutch professionals were employed in our Assurance Service Line. The rank of these professionals varied from senior staff to partner.
The hours involved in an engagement are monitored and assessed for appropriateness, both the number of hours planned and the actual number of hours spent. The relative number of hours spent on audits in fiscal year 2015/2016 by each rank of staff can be summarized as follows:
|Relative number of hours spent on financial statement audits||WeCo/OOB||WeCo/non-OOB||Non-WeCO|
|Partners & Executive Directors||11%||6%||6%|
|Senior Manager & Manager||30%||20%||21%|
Itemized by engagement risk, the figures are as follows:
|Relative number of hours spent on financial statement audits||Close monitoring||Moderate risk||Low risk|
|Partners & Executive Directors||10%||8%||5%|
|Senior Manager & Manager||29%||24%||17%|
Of course, regular team members must possess the industry knowledge required. Over the past decades, our auditors have increasingly focused on just one or a limited number of industries to be able to perform better audits and thus provide better quality to our stakeholders. Industry groups have developed specialized learning programs and technical updates. Audit quality is supported by industry and topic-specific checklists.