It is unlikely that any of these people are efficient because the effective use of budgets is essential in performing efficient audits. This article explains how (and why) budgets should be used on your engagements.

Before Fieldwork Begins
During planning, the engagement team should create a realistic budget for every audit section (e.g., cash, prepaid expenses). Why? A good budget often eliminates confusion that exists about the exact procedures to be performed. For example, a team agrees on an approach to audit fixed assets. When completing the budget, the manager estimates that the staff auditor needs six hours. Let us eavesdrop on their conversation:

Staffer: I cannot do this work in six hours. I will need nine or 10 hours.
Manager: Tell me what you plan on doing.
Staffer: I will spend four hours vouching fixed asset additions.
Manager: Okay.
Staffer: I will spend two hours looking at disposals.
Manager: Sounds fair.
Staffer: And I will spend three hours recomputing depreciation expense for individual assets.
Manager: What? Remember that we decided to eliminate the detailed recalculations that were done last year. Instead, we are simply doing an overall reasonableness test on total depreciation expense.
Staffer: Oh yes, you are right. I guess six hours is reasonable.

When realistic budgets are prepared AND openly discussed during planning, this type of conversation happens all the time. Why is this important? The budget is used to ensure everybody is on the same page. In our example, the staffer would have done too much testwork on depreciation due to the misunderstanding.

Another key point: A quick scan of the budget by an experienced auditor can often detect overauditing or underauditing. Just remember, if budget categories are too broad (e.g., 31 hours for inventory), the effectiveness of the scan is limited. Make your budgets detailed enough to be useful.

During Fieldwork
In many cases, supervisors do not effectively use budgets to manage their audits. Instead, the time accumulation process is simply an administrative chore. But smart auditors monitor budgets carefully for two big reasons:

1. Close Monitoring Minimizes Overruns. The timely tracking of actual hours (as compared to budget) can reveal that a fellow auditor is struggling in a certain area. He may be spinning his wheels. She may be heading off in the wrong direction, focusing on issues that are not important.

   Alternatively, the client may be causing a delay, and it is necessary for the manager or partner to become involved. In short, if somebody is not actively monitoring the budget, these problems may not be detected until it is too late.

2. Close Monitoring Improves Efficiency. Research indicates auditors are more productive when supervisors carefully monitor their time. Quality guru Edwards Deming proved this theory long ago by conducting experiments on assembly lines. From his book, To Renew America:

   "If they increased the lighting, productivity improved. If they dimmed the lighting, productivity improved. It was all very puzzling until the experimenters realized that lighting was not the problem. It was the attention paid to the workers that was improving productivity. Workers were subconsciously motivated to perform better because important people were looking at what they did."

When supervisors do not carefully watch the staff's time, engagements are simply going to take longer than necessary.

After Fieldwork
Pretend you are attending the 1998 NCAA basketball finals: Kentucky versus Utah. How would you feel if this announcement blared across the P.A. system with 10 minutes remaining in the game?

"Ladies and gentlemen. The two basketball teams have agreed to shut down the scoreboard for the final ten minutes. The teams will continue to play, but points and individual statistics will not be counted."

"What?! This is ludicrous," you exclaim. Yet auditors do the very same thing all the time. They stop recording their hours once fieldwork ends. They turn off the scoreboard.

Of course, in an audit, we do eventually find out the ending score when final time-and-billing reports are printed. But the benefits of close monitoring evaporate.

Second, any attempt to conduct a "post-mortem" (i.e., an analysis of actual versus budgeted hours when the job is complete) becomes difficult -- you do not know where the time was spent. A lot of time could have been expended in certain areas (e.g., clearing "accounts receivable" review notes), yet the time is never posted to the proper budget categories.

A post-mortem is an important part of wrapping up the job -- to see where you did well, to document ways to help out next year's auditors...before they are forgotten. Do not miss the post-game analysis.

Do You Still Need Convincing?
If you are still skeptical about budgets, please hear one more argument. Is it fun to run a business if nobody knows how much money is made? Is it fun to play baseball without keeping score? No.

It is funny how some elementary schools hold sporting events where they intentionally do not keep score. Guess what? The kids keep score anyway. It is human nature. Most humans want to know how they are doing.

It is no different in our profession. Audits are no fun without budgets. There is no incentive, no goal to shoot for.

And this leads to one of the greatest benefits of public accounting. We operate in a decentralized business where your engagement team is basically running a corporation. Like any company, you must provide a good product (i.e., high quality audit) and excellent client service. Of course, your company wants to make more money (i.e., improve realization).

Your challenge is to manage the company to achieve all three goals. You have the ability to make a whopping difference. Your team has a lot of influence and power. Individuals who view their jobs in this manner love keeping track of hours. Budgets are, after all, how you keep score in our business.

You will not find many other professions where you can run your own mini-company. Take advantage of it.