Creating good procedures on the UFE

Continuing from yesterday, today we put the P in RAMP and cover one of the most important aspects of assurance which is creating good procedures.

Procedures

Procedures are often the most critical part of your audit planning memo and most often specifically asked for so you’ll have to get good at these. I felt like the 2010 UFE was full of procedures. With procedures you want to focus on the key risk areas in the simulation which is related to audit risk and also often related to accounting issues in the simulation. Here are some things that a good procedure will cover off.

  • Specify how to audit the risk – you’ll need to give a specific procedures to be performed (i.e. inventory count, reconciliation, send out confirmations, etc.) The more specific and non-generic the better. Include specific steps such as observing an inventory count, match x to y, and so forth. These must be very specific to your simulation and shouldn’t be generic. Specificity is the key with procedures so make sure to specify what the overall procedure is (i.e. inventory count) and then some additional detail related to the case (such as for example: by weighing a number of widgets in each crate and multiplying it against an average weight).
  • Specify why you are testing this area, why is it a key risk area? This could be covered off in audit risk as well.
  • Specify what assertion you are testing – Make sure this makes sense, doing an inventory count might be great for existence or completeness but probably poor for accuracy and occurrence. It’s important you understand the assertions and what they mean so that your procedure makes sense.

You’ll want to try and give a good procedure for each risk if possible and, again, the number of procedures to shoot for in many cases is 3-4 valid procedures, but obviously use your judgment and experience in determining how many to write.

One additional insight about what the Evaluation Board expects from procedures can be found on page 8 in the 2010 UFE Report.

Candidates are encouraged to always consider the effectiveness of the procedures they provide. Procedures should address the risk area identified. In addition, when presenting an audit plan to an audit committee or a client, candidates should explain why the procedure is necessary, in other words, how it would successfully address the client’s assurance needs.

 

Last thing: with all of the above, I want to stress that it’s important to use case facts often and clearly when discussing each element. Generic discussion or knowledge “dumps” are seldom rewarded on the UFE so get in the habit early of using lots of case facts in your discussions.

What kind of trouble are you having with procedures?

5 comments

  1. Hi UfeBlogger,

    When you state the “why” for the key risk area, what does that really mean? Do you like the why back to the assertion? I am still confused as to how to approach the procedures.

    Thanks

    • You are answering the question: “Why is this a risk?” and you are linking it back to the assertion and/or Financial Statements usually.

      So… A simple example:

      HOW?: Our auditors should perform an independent inventory count at year end by having an expert weigh the amount of scrap metal using a appropriate scale.
      WHY?: This procedure will allow us to independently confirm that the inventory exists and is correctly valued and therefore that assets are correctly state on the F/S.

      Hope that helps!

  2. That was awesome

  3. Hi! and Thank you!!!
    Keep up the great (and VERY helpful) work!

    With the new CPA program, a lot more people will benefit from these information as modules of different emphasis are offered all year long 🙂

  4. Great post! informative and easy to follow. This is really helpful for my CPA study.

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