• Develop reports faster
• Reduce unnecessary schedules that clients are requested to provide
• Ask fewer questions about accounts that do not matter to anybody except perfectionist accountants

Before continuing, some might wonder, "What is wrong with the traditional, external audit?" Unfortunately, the predominate ways of gathering audit evidence do not add much value to the client. Think about it: confirmations, vouching, footing, recalculating, ticking and tying. How do these efforts help a client improve its bottom line?

Sure, these procedures can add tremendous value if major problems are discovered. But, by and large, these occurrences are rare. As a result, the external audit that we have come to know and love is, well dying.

The following excerpt from "Emerson's Professional Services Review" sums up the situation perfectly.

"If the traditional audit has had on major shortcoming over the last several decades, it is in the area of not being able to provide constructive advice to improve client operations and performance."

It continues: "Most clients do not understand how the independent auditors can spend more time than any other outsider looking at their business and end up with just a signature on the bottom of the page. After all those hours of observations and analysis, aren't there a few pearls of wisdom that could add value? The reality is that regardless of what firms hope and sometimes promise to deliver, the traditional audit approach is very narrowly-focused on the numbers..."

Exciting, New Approaches
With this backdrop, the obvious question becomes, "Can auditors gather evidence by other techniques that 1., ensure compliance with professional standards and 2., facilitate adding value?" Many smart practitioners believe the answer is "yes." How can this be done?

Two major ways: By gaining a better understanding of the client's business and taking advantage of technology.

Understand the Clients Business
In several new approaches appearing in the marketplace, a major premise is that auditors must spend more time understanding the client's business. This knowledge gives the audit team tons of opportunity to truly add value.

If an auditor truly understands the client's business, internal controls, and issues faced by management, she is also in a much better position to opine on the financial statements. Here is why:

• The auditor can better identify risks and issues that lead to material misstatements. For example, sometimes the biggest risks are not listed on the general ledger or "PBC" schedules. Contingent liabilities, competitive threats, or subtle control weaknesses might be far more important than verifying that certain outstanding checks cleared.

• The auditor is able to perform stronger analytic procedures because of informed expectations about what the balances should be (as opposed to the current approach used by many firms, where the auditor simply compares current year balances against the prior year and explains big fluctuations). Strong analytical skills improve quality and enable engagement teams to reduce other time-consuming substantive procedures.

First, technology can eliminate inefficiencies such as 1., paper-based workpapers, and 2., the rekeying of data that occurs when trial balances, financial statements and tax returns are not linked together.

Second, tools such as data extraction software (ACL or IDEA) are essential in a digital world. This technology is a powerful way to enhance client service and identify management letter comments that have real meaning to clients.

What Should You Do?
Despite the logic described above, overhauling your audit approach is simply not an option for most CPA firms. Do not despair, though, there is good news. An overhaul is not necessary. Many systems, including market leader PPC, allow auditors to move in this direction.

For example, the SASs require that an auditor understand that client's business. At most CPA firms, this is documented in a short and rote manner on a standard form. The alternative is to beef up this section of the workpapers and then leverage this knowledge by tailoring your audit approach. There is nothing stopping you from doing this.

Want specifics? More CPA firms are inserting the following procedures into their audit programs:

• performing industry research to identify industry trends and hot issues
• benchmarking - comparing the client to others in the industry
• interviewing client personnel in areas outside of the accounting-finance area (e.g., sales, marketing, human resources, production, maintenance)
• reading client documents such as minutes, strategic plans, memos and newsletters.
• performing competitive analysis
• reading analyst and other reports
• understanding where the real control weaknesses exist (as opposed to simply performing walk-throughs of typical transactions or completing a yes-no questionnaire)

For example, suppose that the vice president of purchasing says the company's key supplier has been raising prices, but it is impossible to push along these cost increases to their customers because of intense competition. You would expect to see a narrowing of gross profit margins, right?

Compare this to a typical auditor's analytical explanation. "Margins were 22 percent last year, and 22 percent this year. No change. Appears reasonable." No expectation - lousy quality work.

To conclude, strong analytical procedures, coupled with the power of technology, create the potential for an exciting value-added service that complies with professional standards. Real expectation based on a solid understanding of the client and its risk makes this possible.

And yes, this type of auditing is far more interesting than doing a bunch of vouching, confirming and recalculating.