Management Planning and Control

Topics: Audit, Auditing, Management Pages: 12 (3740 words) Published: November 18, 2013

Table of Contents
Table of Contents2
1. Key actions and results3
2. Organisational context3
2.1 Organisational strategy3
2.2 Employee control problems4
2.2.1 Lack of directions4
2.2.2 Lack of motivation4
2.2.3 Personal limitations4
2.3 Processes and output4
3. Management Control System5
3.1 Action controls5
3.1.1 Preaction reviews - Audit Management Information System (AMIS) 5 3.1.2 Action accountability and Redundancy - employee/partner involvement5 3.2 Result controls6
3.2.1 Audit reviews6
3.4 Personnel controls6
3.4.1 Training and provision of resources6
4. KPIs7
4.1 Financial7
4.1.1 Organisational - legal expenses7
4.1.2 Individual - individual training expenses7
4.2 Non-financial8
4.2.1 Organisational - growth in client base8
4.2.2 Individual - rate of identification for material items8 5. Evaluations8
5.1 Audit Management Information System (AMIS)8
5.2 Action accountability and Redundancy – employee/partner involvement9 5.3 Audit review 9
5.4 Training and provision of resources10
5.5 Time budget10
Audit Process (KPMG. 2010, Braiotta et al., 2010)11
6. References13

1. Key actions and results
This report focuses on the design and evaluation of a Management Control System for the Auditing division of “Pierre & Silva” (P&S), a hypothetical established second-tier, industry-specialised accounting firm operating in competition with the Big 4 and other second-tier accounting firms. One of the most important challenges facing the auditing industry is its ability to provide high quality audits . Recent survey reveals investors’ confidence in Audited Financial Information had held steadily at 70%, down from 80% since the GFC . To address quality problems, key actions that need to be controlled across the audit division consist of: Preparing financial information using appropriate accounting standards, and applying them consistently Providing comprehensive analysis of the financial information and ensure that it complies with relevant statues or laws Managing the time required to complete each audit

Additionally, key results to be controlled include:
Financial information is representative of auditor’s knowledge of the business Material matters relevant to the presentation of financial statements are adequately disclosed 2. Organisational context

2.1 Organisational strategy
P&S will employ a differentiation strategy based on industry-specialisation. Studies have found that compared to non-industry specialist counterparts, industry-specialised auditors can reduce audit production costs, improve audit timeliness, and improve disclosure quality . Additionally, studies have found that many clients switched to industry-specialised second-tier firms as their audit qualities are on par with the Big 4 . As such, P&S’s differentiation strategy in providing high quality audits enables them to compete with the Big 4 for their existing clients, as well as smaller and/or higher risk clients avoided by the Big 4. 2.2 Employee control problems

2.2.1 Lack of directions
The majority of auditing work is carried out by juniors . Studies found that it is common for juniors to report to managers who are physically removed from fieldwork, as managers are under time pressures in completing their own work . Even in situations where juniors report to managers, very little time is devoted to supervision. The lack of direct supervision can lead to lack of directions as majority of juniors are trainees and graduates who are inexperienced in dealing with complex problems. 2.2.2 Lack of motivation

Time pressure is a major cause of employees’ motivational problems. A study has found that auditors sometimes respond to internal time budgets by engaging in quality threatening behaviours such as reducing sample sizes and prematurely signing-off tests . Additionally, auditors may engage in behavioural displacements when dealing with external...

References: AUDIT COMMITTEE LEADERSHIP NETWORK (ACLN). 2012. Evaluating the audit and external auditor. View Points. 37, 1-13. Tapestry Networks.
BARRETT, M., COOPER, D. J. & JAMAL, K. 2005. Globalization and the coordinating of work in multinational audits. Accounting, Organizations and Society, 30, 1-24.
BOONE, J. P., KHURANA, I. K. & RAMAN, K. K. 2010. Do the Big 4 and the Second-tier firms provide audits of similar quality? Journal of Accounting and Public Policy, 29, 330-352.
Braiotta, L., Colson, R., Gazzaway, T. & Ramamoorti, S. 2010. The Audit Committee Handbook. 5th Edition. New York: John Wiley & Sons.
CORAM, P., NG, J. & WOODCLIFF, D. 2003. A Survey of Time Budget Pressure and Reduced Audit Quality Among Australian Auditors. Australian Accounting Review, 13(29), 38-44.
FRANCIS, J. R. 2004. What do we know about audit quality? The British Accounting Review, 36, 345-368.
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GREGOR, K. 2012. Ernst & Young partner guilty of Feltex books breaches. The New Zealand Herald [Online]. Available: [Accessed October 19 2012].
HABIB, A. 2011. Audit firm industry specialization and audit outcomes: Insights from academic literature. Research in Accounting Regulation, 23, 114-129.
HABIB, A. & BHUIYAN, M. B. U. 2011. Audit firm industry specialization and the audit report lag. Journal of International Accounting, Auditing and Taxation, 20, 32-44.
KNECHEL, W. R., NAIKER, V. & PACHECO, G. 2007. Does Auditor Industry Specialization Matter? Evidence from Market Reaction to Auditor Switches. AUDITING: A Journal of Practice & Theory, 26, 19-45.
KPMG. 2010. Transparency Report: Audit Quality in Focus [Online]. Available: [Accessed October 12 2012].
MERCHANT, K. A., VAN DER STEDE, WIM A. 2012. Management control systems : performance measurement, evaluation and incentives, Harlow, England, FT Prentice Hall.
PIERCE, B. & SWEENEY, B. 2003. Auditor responses to cost controls. Irish Accounting Review, 10, 45-68.
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PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD. 2012. System of Quality Control for a CPA Firm 's Accounting and Auditing Practice [Online]. Available: [Accessed October 19 2012].
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SOOBAROYEN, T. & CHENGABROYAN, C. 2007. Auditors ' perceptions of time budget pressure, premature sign offs and under-reporting of chargeable time: Evidence from a developing country. International Journal of Auditing, 10, 201-218.
SWEENEY, B. & PIERCE, B. 2004. Management control in audit firms: a qualitative examination. Accounting, Auditing & Accountability Journal, 17, 779-812.
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