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Optimum Professional Services are delighted to launch the new monthly conversational series, “Optimum: LIVE!” which will provide the opportunity for you to hear from members of the Optimum team and special guests each month as they delve into a variety of subjects in light-hearted, fire-side chat style productions.
Each episode will be shot or broadcast live (yep! One take!) which means that it is not scripted or edited and has a more natural and engaging tone.
This is a https://www.visual-pr.co.uk production
00:00:00:02 - 00:00:50:29
Chris
Welcome back to Optimum Live episode 25. And this one we've got the top five myths of audit in really interesting. We're going to bust them and really find out an awful lot more. Thankfully, you'll be pleased to know it isn't just me. We've got two people here that know what they're talking about, so stay tuned. Top five myths getting busted.
00:00:51:01 - 00:01:11:27
Chris
So welcome back to Optimum Live. Delighted to say I've built you up there. The experts and welcome both of you the first time back. Well, second time being on camera for the first time in the studio for Hannah Matthews, head of assurance and accounts and Tom Absalom, your first time full stop. And. Yeah. And your, what we call it audit scene.
00:01:12:04 - 00:01:15:10
Tom
Yes. Yeah. I've been doing audit for the last eight and a bit years now.
00:01:15:10 - 00:01:30:27
Chris
So I love that. And I know that during this conversation we're going to be looking at this from the angles of companies, charities and academies. Yeah. And I know before we came on we were talking about you've been doing charities, working with charities for five years.
00:01:30:27 - 00:01:32:02
Tom
Yeah, for five years.
00:01:32:02 - 00:01:32:19
Chris
And I love it.
00:01:32:21 - 00:01:52:14
Tom
Yeah. It's fantastic. I think it's really, you know, it's good to do work for charity in comparison to limited company, because charities have for the benefit of the local community for the benefit of a greater, bigger cause as well. Yeah. Rather than sort of lining someone's inside bucket, you know, it's really, you know, it's it's quite rewarding.
00:01:52:16 - 00:01:53:13
Tom
Doing with charities.
00:01:53:13 - 00:02:14:22
Chris
Definitely. I can imagine, though. I know Hannah, you you were at pains to let me know when we do the pre-show briefing. Is that optimum as a whole? Of course. You know, plenty of of companies like mine. And in every industry going but very strong in working with charities and academies. Of course, the education sector is big.
00:02:14:24 - 00:02:35:23
Hannah
Yeah. It's something that, we've been involved in for a very, very long time. Our partner, Rob Stokes, has been involved with academies since their inception. I got involved around the beginning of 2017, and I love it when you go into a charity or an academy, you're faced with people who want to further education for children.
00:02:35:25 - 00:02:45:06
Hannah
Or benefit the community with not much resource and not a lot of money. And it's amazing what they can do with that type. So much. Yeah. So much. Yes.
00:02:45:13 - 00:03:04:29
Chris
No, I get that. So through all of this, we're going to be trying to make sure that we, include in all of those three key elements. Right. Let's kick straight in a myth about auditing. It is just about checking the numbers. Audit is just about checking the numbers. Is that fair?
00:03:05:02 - 00:03:07:09
Hannah
No.
00:03:07:12 - 00:03:34:01
Tom
I mean, yes and no. Obviously one of the main things is an audit. You've got to make sure that they show a true and fair view. So that's not just the numbers. That includes the disclosures that you also include in the accounts. So making notes about turnover stock, anything like that, that a reader of those accounts can go, okay, I'll get a full summary of what's happened for that charity limited company, Academy for the financial year.
00:03:34:04 - 00:03:50:18
Tom
It also then us going in there and providing assistance to them. It gives them more confidence about what we're doing and what they're doing and making sure that we're, like you say, about the right time. They're not crossing that line. They're doing everything is as we expect them to basically.
00:03:50:21 - 00:04:14:18
Chris
It's down to, I promise you, I wouldn't get into too much detail like this, but I'm going to use the word thresholds for a minute. And suffice to say, I think we can say there's different thresholds depending on turnover, assets, foreign ownership, things like that. Equally, I went off on a wrong tangent, but it's still an audit of a kind is due diligence for for acquisitions and things like that.
00:04:14:21 - 00:04:19:22
Chris
You have to dive deep into more than just the balance sheets.
00:04:19:24 - 00:04:43:18
Hannah
Yeah, absolutely. And ultimately, as Tom said, we're providing an opinion on financial statements or in the example you've just given, we are providing assurance to whoever has engaged us in the case of due diligence, for example. But overall, you actually have to look at the whole picture. I think to be a good auditor, you need to be a couple of things.
00:04:43:21 - 00:05:11:15
Hannah
One of them is nosy. You need to be willing to ask defacto difficult questions, but you've also got to be pragmatic and open with your client too. And we expect that to way we're looking at the full picture. So we're looking at how boards are structured and how well their governance is structured, and the effectiveness of that governance, as well as looking really low level at the transactional level.
00:05:11:18 - 00:05:33:19
Hannah
However, there is something we would specifically like to bust. We don't check every transaction that doesn't happen. So people think that you go into a company, into a charity and you're looking at every single line. We don't it's actually all sample derived. And what drives the size of our sample or where we may look specifically is the risk.
00:05:33:21 - 00:05:53:15
Hannah
Yeah. So our very first port of call and engaging with any client on audit is understanding risk. And to do that we have to look at governance processes, culture effectively looking for the whole story. And that is what then informs our opinion on those statements.
00:05:53:18 - 00:06:06:14
Chris
Fair enough. So I think a simple audit is not just about checking the numbers. Definitely. I always get this feel that you like detectives, you've got these little claims that could lead you on different directions.
00:06:06:14 - 00:06:07:10
Tom
Oh, definitely. Yeah.
00:06:07:10 - 00:06:33:07
Hannah
Yeah. And I think that's personally what I find quite exciting. And that isn't meant in a negative way at all. Sometimes we see charities, that are staff members specifically that are like just totally, totally oversubscribed. You know, that weekly hours for work is X. This is the amount of work they do. And then we go in and we look at the underlying systems, the processes.
00:06:33:09 - 00:06:55:12
Hannah
And actually part of it becomes about okay, so how can we improve the internal control environment. Number one. And with that can we actually increase make efficiencies. So we can't implement those ourselves. Their recommendation we give the client however you're actually making someone's day to day better. And I hadn't.
00:06:55:12 - 00:07:15:13
Chris
Thought of it that way. I think in the back of my head, I was almost having a separate question about who's, how can I put this? Almost. Whose side are you on when you're doing this, I guess? Is that is that blunt way to say it? And, and and I guess you're about you going in neutral. It's almost the impression I get.
00:07:15:13 - 00:07:26:15
Chris
I mean, it might be that it's like, okay, guys, you're doing something wrong. That or actually, you could we could help you here. But the more efficient. I think it's an obvious one, isn't it? So you are set up as a neutral party and.
00:07:26:17 - 00:07:48:27
Hannah
You always go in with a certain. We have a concept called skepticism. Don't ask me to spell it. We have professional skepticism, and we always have to go into every engagement with a certain level of skepticism. However, that doesn't mean straight away we're looking to go and catch people out. Actually, what we want is the opposite. Yeah, we want to help clients mitigate risk.
00:07:48:27 - 00:08:01:08
Hannah
We don't want to see clients in trouble. You don't want to go into an audit and uncover fraud. And that's not people think that's a lot of what we do. And actually that that's not the case. It's very small part of what we do.
00:08:01:10 - 00:08:25:01
Chris
Yeah, I can imagine, I think or equally sorry to almost say is equally is is identifying that you're leaving yourself vulnerable to an accusation of it, you know, but be careful what you've done there from an innocent mistake could if it grew. I've seen stories like that have taken place, and then it was like naivete has led them further down a path that they had no intention of doing it.
00:08:25:06 - 00:08:50:23
Tom
Yeah. I think one of the difficulties is that we're going in there and basically saying, well, we'd expect it like this, which can sometimes put people's front up and go, well, hang on, this is how I've been doing this. And, you know, we want we want the best for our clients. We want to be able to go and help them to get, you know, an unqualified audit report, which at the end of the day is what everyone wants because it then goes out in the public eye and people see and go, okay, well, you know, this company's doing it right.
00:08:50:23 - 00:09:17:12
Tom
It shows the true if I view the statement so I can invest in that company, I can, you know, I can put donations to that charity and they're all going the right way around. I think sometimes when we're doing our sampling, if we've got a sample of, say, 2030, if we start doing that and we find one error that could be one error in the whole sample, but we select it, it could be one error, but everything else is wrong.
00:09:17:12 - 00:09:35:22
Tom
So we've got to then consider okay, we need to go into more detail of that which can then again sometimes the clients will maybe go, oh why are you asking about this? And said, no, we just want to make sure that we're doing our job, but also that your accounts are, as you say they are, as are expected.
00:09:35:24 - 00:09:57:09
Tom
So I think it's quite difficult for us going in and asking questions can sometimes put clients in a difficult position as well. This is how we do it. And it's, it makes them feel a bit or taken aback sometimes. But it's like you say, going back to those different, more difficult questions we've got to ask. And making sure that they're all happy 100 pounds.
00:09:57:11 - 00:10:25:24
Hannah
I think it's about Tom's absolutely right. And what he says and the way that we try to, get a positive reaction from clients or engagement, rather should I say, is why we have pre-planning meetings. So for me, the orders are very much about the relationship with the client to so say a client has a finance team and there might be, one individual in that finance team that could be very nervous.
00:10:25:24 - 00:10:50:12
Hannah
For example, just because that's the kind of person they are or maybe a little bit defensive, you also need to think about how am I going to communicate with this individual, because ultimately we need to get here. It doesn't necessarily matter how we get there, we just need to get there. Now that might be that I'm going to go and see them, or it might be that I'll have a call with them not picking up the phone, not just typing it all over email.
00:10:50:14 - 00:11:02:28
Hannah
We've got to be very responsive. And I think auditors there's often the stereotype that you're stuffy individuals who are incredibly boring and, you know, difficult. That's certainly not us.
00:11:03:02 - 00:11:19:13
Chris
No. And, you know, this is one of the benefit of, you know, content like this is that people get to see that, but it definitely not. I mean, I love the, the the succinct summary that, that you guys had in the notes to me, is that it's not just about checking the numbers. That's the myth being busted.
00:11:19:13 - 00:11:38:06
Chris
It's it's about confidence in governance, in processes, decisions, that have been made and are yet to be made. I would imagine, both as important, and the story that the numbers are telling. So there's, there's, there's an interpretation, there's a narrative to go with the black and white figures. Yeah.
00:11:38:09 - 00:12:01:06
Hannah
So we'll probably touch on this a little bit later. But talking to the client is extremely important for that story, because that informs you not only where the risk is, but where things are supposed to be moving. And I mean that definitely in the case of the numbers, too, when you're talking to a client getting little bits of information here and there, you then have a picture and a flow for where you feel things are going.
00:12:01:14 - 00:12:12:21
Hannah
Well, I think auditors are particularly good at recognizing patterns, and we do it without even realizing. And that's how, we can hone in on various elements,
00:12:12:24 - 00:12:29:19
Chris
Including I was almost there imagining including a break from patterns when you suddenly go, why have you suddenly changed that? You know, you say about people or the front of that sort? We we've always done it. There could be times we go, that's not the way you guys have historically done this. What? What's changed?
00:12:29:21 - 00:12:43:20
Tom
But then that could mean that a different individuals process something, or it could mean that that's the rabbit hole. We then go down, find out why that has happened. Whether it is for very good reason or whether it is something that potentially could lead to something more drastic.
00:12:43:24 - 00:13:08:02
Chris
Yeah. Okay, I love it. That makes complete sense. Another myth about auditing that we're going to try and bust. If nothing's gone wrong, our audit risk must be low. And I would say naively, and we've overly said that I'm very naive about audit, that if nothing's gone wrong. So there's no problem. But this is obviously a myth that you're about to bust on us now.
00:13:08:04 - 00:13:41:21
Hannah
Yeah. So for me, we don't necessarily follow mistakes. We're following behavior. So when I've just said to you about talking with a client, having those discussions, talking to their team, observing, that's how we see behavior. And when we're looking, one of the things we're required to do is look at the internal control environment. And by that, it is what it says on the tin, you know, from your business, for example, you've made a payment out of the bank, but someone else looked at that and authorized it.
00:13:41:21 - 00:14:06:12
Hannah
You're an owner, man. Is business slightly different for you? But if it was one of your team members, for example, someone else should have sight of that. Things like that, all of those little snippets and understandings from that, that we obtain as we go through that informs our approach and what we're going to do. And often it isn't the mistakes on the face of it that's the problem.
00:14:06:12 - 00:14:23:23
Hannah
It's the behaviors over here, because behaviors lead into different decisions being made, different motivations for those decisions. But the deeper you dig, eventually, as you say, whether the detective work, so to say, so to speak. Yeah, that's where we get to.
00:14:23:25 - 00:14:46:22
Chris
I mean, I'm almost envisaging as well, you mentioned charities being something you've loved being involved in, and I would imagine it's got to be the same for academies. There is changes at the helm or, you know, in the team at the helm, if you will, that because people might be in there for a two year stint or something like that, and that's got to have an impact on what's going on.
00:14:46:22 - 00:14:52:11
Chris
And so it might not be a mistake. It could be a change that may or may not be a good route to be taking yourself.
00:14:52:15 - 00:15:06:10
Hannah
Yeah, a new finance software for example. So our finance software, everyone is very comfortable. New finance software, everyone's had training. Have we done enough work about the transition from one to another? Wow. That's a big risk.
00:15:06:10 - 00:15:11:28
Tom
Because again the controls will be different from one to the other. The processes will be different one to the other, the codes.
00:15:11:28 - 00:15:12:10
Chris
The.
00:15:12:10 - 00:15:13:10
Tom
Exactly what goes.
00:15:13:10 - 00:15:17:10
Chris
What have you said with a degree of experience on that? Yeah.
00:15:17:12 - 00:15:34:04
Hannah
With that kind of thing too. This time pressure often because this software provider over here wants to switch you off because you're not a client anymore. Bye bye. You don't want to pay for an expensive read only license. And this transition. So on top of that, you've got time pressure, which then means the internal controls might be bypassed.
00:15:34:11 - 00:15:40:10
Hannah
I'm supposed to do this job. You're supposed to do that job, actually work against it, get it done.
00:15:40:13 - 00:15:58:22
Chris
I know that you put, for example, in a lot of situations, it could be one person that's controlling money, journaling, approvals, whatever. And I don't say that in a derogatory way. I mean that that's a person that suddenly has a bad day or has gone through something that means they're not thinking about it properly and so on.
00:15:58:22 - 00:16:09:13
Chris
What was there going whilst we've said nothing's gone wrong? So the risk must be low again, it's not on a witch hunt for those mistakes. You're my safety net, surely?
00:16:09:16 - 00:16:10:06
Hannah
Absolutely.
00:16:10:06 - 00:16:21:17
Chris
Isn't that the way that I should be? Say, we've mentioned earlier that, people suddenly might get in the front because, again, that's the way we've always done it. It's like, actually, you're my safety net.
00:16:21:19 - 00:16:22:05
Hannah
Yeah, yeah.
00:16:22:10 - 00:16:24:23
Chris
You're going to make sure I don't make mistakes.
00:16:24:26 - 00:16:27:03
Tom
And I mean, at the end of the day, we're human. Right.
00:16:27:06 - 00:16:28:00
Chris
Exactly.
00:16:28:03 - 00:16:45:28
Tom
But it's it's then going, okay, we found this mistake. Is this a result of A or B, or is it just simply, you know, you had, like, say you're having a bad day, you've inputs, you did something wrong. And is then following those, processes and controls to make sure that it doesn't occur more times throughout the year.
00:16:46:00 - 00:17:02:12
Tom
Making sure that it is simply just a one off mistake that we can then go, okay, that's fine. We'll make that adjustment if we need to, advise them to make that adjustment. So we're have with the accounts, or whether it is simply, you know, it does lead us down the rabbit hole again to make sure that we're finding all of those.
00:17:02:15 - 00:17:03:09
Chris
Yeah.
00:17:03:11 - 00:17:23:24
Hannah
If you think if you think about cash. Right. So the cash risk less. And that's relevant now because we all go into card payments. But an example of this would be I do you work at a coffee shop wherever you are, the cashier at the till, at the end of the day, historically you've always done it on your own or whoever the individual was on shift.
00:17:23:26 - 00:17:47:06
Hannah
They've done it, you've done it, you've signed it off. Off it goes. Let's say cash goes missing. Most of that individual necessarily. Yeah. Or maybe it was a mistake, but actually the numbers are saying that the variance is it or the cash should be this and it isn't without somebody else there checking that signing that off, how on earth is that person protected.
00:17:47:09 - 00:18:11:02
Hannah
Yeah. You know, so it's like in the case of the post office scandal. And that's a very, very different scenario. But they had a piece of software that was not fit for purpose. However, you had postmasters doing reconciliations on their own. His it was their word against a giant's word. And the quotes happened.
00:18:11:09 - 00:18:12:11
Chris
Quite exactly.
00:18:12:11 - 00:18:19:19
Hannah
How much of this is about actually protecting the individuals, too? It's not about a witch hunt, as you put it, you know.
00:18:19:22 - 00:18:41:10
Chris
And I think that, you know, I was, in, in our in whether to mention that example at all. But since you've pulled the pin, I'll briefly touch on it. Is that that for me is also an overreliance on automation or on systems, is that there still has to be whether it's interpretation, whether it's take the human element into it.
00:18:41:16 - 00:19:03:04
Chris
And again, that's where the audit goes. I loved it when you mentioned that you use the Cafe example. One of the things I know Rob and I had spoken about in the past with, say, a charity, for example, is that they'll have other outlets to help support, you know, raise money for that charity. And a cafe is a is is a relatively common one or a shop.
00:19:03:06 - 00:19:03:24
Tom
You know.
00:19:03:27 - 00:19:17:10
Chris
That is actually raises a suddenly you've got a different way, a different subset of people and knowledge and experience and things like that. And it's to have that safety net to bring it all together to go, let's make sure everything, everything's being done properly.
00:19:17:12 - 00:19:38:17
Hannah
Yeah. And in those, in the case of a charity, the added layer of complexity, there is resource because to have someone as dual signatory there to sign that off, that means they need to have paid somebody else the extra that actually cost the charity. So a lot of this as well, or the key in having good auditors is also finding auditors who are pragmatic.
00:19:38:20 - 00:20:05:28
Hannah
Now in that situation, specifically, someone has to be available and that's what you should be doing. But there are other instances where, you know, the trustees would take a view. And if you get ultimately it's the choice of the trustees whether to do all work, provide recommendations. But ultimately, in a situation, in a charity setting or an academy setting, ultimately it's the trustees who make that decision.
00:20:06:00 - 00:20:27:18
Chris
I think there's, I've used this phrase in a few different ways is that there's an element of not necessarily just proving that you haven't done anything wrong because you'd kind of go, well, surely that's that's a given. But you can't always prove a negative. But it's about showing to people that not only have we haven't done that, I've lost.
00:20:27:18 - 00:20:47:24
Chris
My train of thought on this one is that it's showing that we can't have gone down the wrong route because the checks and balances, the the oversight is there. So it's not just show me that you haven't. It's like and we can't we wouldn't. So don't try to accuse me because everything is in place to show that.
00:20:47:26 - 00:21:13:13
Hannah
Or alternatively, the situation would always end up that way because of things out of the entity's control. It may well be that we sit in a planning meeting, and we always ask this question, is there anything you would like us to look at? Because that's where a lot of, especially after the first year, clients realize we're not the big scary auditor, you know?
00:21:13:13 - 00:21:52:01
Hannah
I mean, what's on me? I'm five foot one. I'm not an at that, but but they realize, actually, yes, you are human. Number one, we can engage with you and often they'll say, I had one last year and, the usual members of staff, weren't in post and therefore the duties had to get shouted out, etc., etc. and one of the trustees said to me, actually, I would like you to look at this specific area, not because I think anything has gone awry, but just because I feel it is our responsibility as trustees to just make sure that this area, is okay.
00:21:52:01 - 00:22:16:01
Hannah
And that's exactly what we did. And that's great sometimes on the operational level. So that was a strategic individual telling, asking us to look in a certain place, sometimes at the operational level. And this would be the internal accountant or head of finance, whatever. Sometimes I say, I don't think this element here is working quite well. I'd be really grateful if you could go in and, you know, have a look XYZ at.
00:22:16:04 - 00:22:19:14
Hannah
And that's a lot of what we do today. And we really like this conversation.
00:22:19:16 - 00:22:41:12
Tom
And then again, we then provide a recommendation of how it could potentially work better or okay, you know, that's you know, that's what we'd expect that that works pretty well. It doesn't lead to any issues that we've found. And we sort of then, you know, go dive down into it a little bit more. So not only for our benefit to make sure that the processes are there, but then the client can go, okay, you know, that that helps us on a day to day that helps us going forward.
00:22:41:12 - 00:23:01:02
Chris
It's what I was about to say. The going forward is it can guide decisions the do or don't need to happen. Yeah, exactly. Oh, it makes sense. Okay. I'm going to, change tack a little bit here. Another myth about auditing fraud is about bad people doing bad things.
00:23:01:05 - 00:23:18:29
Hannah
No. Often fraud happens because we've got good people, good people who have adopted bad behaviors and have bad habits. Let's say that's often what happens.
00:23:19:00 - 00:23:22:12
Chris
Often by trying to be quick or something like that. Potentially.
00:23:22:15 - 00:23:48:10
Hannah
Yes. Sometimes it is trying to push a boundary. It's also about understanding individuals, right. Understanding people because I think you can tell, after spending some time with people who's willing not to completely step over the line, but who's willing to think of the the child in your class at school who wasn't quite naughty and probably had a great smile and some charisma that the teacher really, really loved them.
00:23:48:12 - 00:24:01:12
Hannah
However, they did push them boundaries, and once those boundaries were pushed, they then got some kick back and then they realized nope, nope. That actually line the boundary. Something I wish my toddler would be adopting right now.
00:24:01:12 - 00:24:21:07
Chris
But I was about to say is that that is where it first starts, isn't it? And and animals, you know, pets and you know, dogs, I think is probably the only pet you can probably trademark that is that they kind of go I when I went across that line, yeah, I got in trouble. I got a pushback. As a motorsports commentator, I obviously love formula one.
00:24:21:09 - 00:24:35:09
Chris
There is a sport that is always about have a little bit go to get, you know, to win. And but then as soon as they overstep it it's back again. They're not there to be criminals. They're there to, to win in their situation.
00:24:35:11 - 00:25:00:05
Hannah
But like in the case of Formula One, right when they overstep, when it's legal, it's allowed. Okay. Well what was the result. Innovation. Yeah exactly. Innovation. And and ultimately, you know that leads to good things. So it's it is actually good to work with people like flair like that. Don't get me wrong. But yes, often, as you say, good people, some poor habits.
00:25:00:08 - 00:25:04:07
Hannah
That's ultimately, how it often is, how it happens. Yeah.
00:25:04:08 - 00:25:24:11
Chris
I made a comment earlier. Safety net. You know, you guys are safe and and as we say in there, is that okay? Going to those boundaries can lead to innovation and, and everything else. But the only way I know I can do it is if there is someone to go. I don't know, you really can't. That that's that's going to be wrong.
00:25:24:11 - 00:25:29:23
Chris
Yeah. And it's and not least there could be a mistake, interpretation of it.
00:25:29:25 - 00:25:30:07
Hannah
Yeah.
00:25:30:12 - 00:25:37:15
Chris
We're not as knowledgeable as you guys in in the interpretation of you. And I could get it wrong.
00:25:37:17 - 00:25:38:11
Hannah
Yeah.
00:25:38:13 - 00:25:41:12
Chris
For not know that there's a, there's a line there that sets.
00:25:41:12 - 00:26:06:09
Hannah
Yeah. So a good example of that I think could be when we have these, mistakes. So in the kind of like the accidental Arizona, let's call it that on audit and within in accounts, financial statements, there are certain areas where it is what it says on the tin. Right. Think of an invoice. You've got an invoice for, stationery.
00:26:06:17 - 00:26:29:10
Hannah
You can't really argue with that because it's the invoice and that's what it is. But there are areas that require judgment. There won't necessarily be an invoice with this is how much this is or valuation, etc. and in those areas where you have to exercise judgment, kind of two things happen. One, you've got the judgment of how the item, whatever it is, has initially gone into the accounts to you.
00:26:29:10 - 00:26:58:16
Hannah
Then you've got the auditor going in, pulling that judgment apart and looking for evidence that underpins that judgment. Now, what can happen is that within that there could be motivators. For example, that company has lent money from a bank, and a bank has a certain covenant. You know, your your gearing or, your level of borrowing must stay within a certain range in relation to your turnover and your ability to pay interest, things like that.
00:26:58:18 - 00:27:26:06
Hannah
Now, if something happens and that shifts, oh, we're going to breach the covenant or the bank's going to have a big problem with that. So what some people may be motivated to do is for example, they might have. The initial example I was thinking about was trying to recognize a lease on a building differently. So you're looking at a lease and you're saying, okay, well the break clause is here, and oh, maybe I could do something with that.
00:27:26:06 - 00:27:36:19
Hannah
And then we as auditors go in and go, actually, sadly, no, take the bank manager out for a coffee or a beer.
00:27:36:21 - 00:27:55:27
Chris
That that makes sense. I mean, you I see your accidental wrongdoing zones, and I see that on the notes I have that payroll and benefits, personal spend again. That's a very, even for me, where I don't necessarily need a full audit. I can sometimes find the personal spends a bit of a trap door.
00:27:55:29 - 00:28:17:11
Tom
Yeah, it's very easy to do. I think, you know, that. There's so many easy ways of spending Apple Pay, Google Pay, anything like that, simply clicking on the wrong card or realizing that if you're banking with the same bank. Personally, I'm with your business so simple as just going like that. And then you look back at, oh, see, Osama's and that'll be business related, but then realize, you know, if I.
00:28:17:13 - 00:28:34:28
Chris
If I do have car parking and I've done accidentally just went, yeah. Forget the default card was the business card because I'm normally parking for business reasons. I was with the family and it's like, oh heck. And it's like, right. I left to sort that out afterwards. And it's easy to do.
00:28:34:28 - 00:28:36:20
Tom
Yeah, yeah, it's I mean, it is.
00:28:36:20 - 00:29:00:02
Hannah
And it's something so personal spend in particular for directors is something that that the revenue is such an easy challenge. So that is definitely an area, where you look at. So when we talk about these, most audit rates comes from good people building bad habits. What we would do is identify those habits. And then that's where we're going to look.
00:29:00:02 - 00:29:25:06
Hannah
So payroll benefits in kind that that's a really easy one. So you often find that businesses don't realize I think, oh, you know what we would like to become an employer of choice. And therefore we are going to offer private medical, gym membership, etc., etc. all of our tracks of benefit and kind. And often it's ignorance in that in that instance, people don't realize.
00:29:25:08 - 00:29:44:21
Chris
Yeah. And, and I think a lot comes under that one. And I've, I mean blind trust in systems. We've already touched on that. We want to be others. That can easily be a mistake. Just this once. And I know you've put that in time and have it, so it's not actually doing it when you shouldn't make it be the timing that you do it.
00:29:44:25 - 00:29:48:17
Chris
I'm judging from that. So that that becomes something you have to look at as well.
00:29:48:19 - 00:30:15:02
Hannah
Yeah. You often see this in, something that we call window dressing. So this is when a decision is made to either push or pull income into a period that it doesn't relate to or push and pull expenditure. The impact of this could either make profit go up or go down. But again, we're looking for motivation. And what motivation would be around.
00:30:15:02 - 00:30:36:09
Hannah
This is why so important to speak to the client and and really and throw yourself in the business. That's where we mostly see that. And you'll see, okay, just this once because they may, you know, the corporation tax rate has risen to 25%. And over the last couple of years that's been quite significant for businesses, too. I don't think you're ever going to get an appetite for it.
00:30:36:09 - 00:30:50:25
Hannah
But to swallow. And you may find that people are trying to move profits out of the current year because cash wise, they can't pay the key. You know, so they're trying or they're trying to reduce their cash exposure.
00:30:50:28 - 00:31:02:16
Chris
Got you question I'm going to raise. Then another point you got here that I don't understand. So I want you to explain hopefully inconsistent estimates year to year. What does that mean.
00:31:02:19 - 00:31:24:22
Tom
So I think one of the more common estimates that you get with with clients and companies in general is depreciation. So where you have assets like computer, car, sofas, things like that. They then get written off over their useful economic life. So you've got a car, say the value of the car to the business is only going to last three years.
00:31:24:22 - 00:31:49:15
Tom
So you write it off. And consistently over those three years, what we see sometimes is that they've gone, okay, well, this car is built for longevity. Well, right after the ten years or, you know, over two years, because it's a portion, you drive it out of the factory and it's already lost. Yeah. But then making sure that those estimates that are applying to those accounts are being applied consistently.
00:31:49:17 - 00:31:59:15
Tom
So that goes back to one of my first points discussing about disclosures and the notes you have in a set of accounts that making sure those notes are actually being applied.
00:31:59:18 - 00:32:00:28
Chris
Got you. Fair enough.
00:32:00:29 - 00:32:16:29
Hannah
But the motivation behind doing that, if you think why a director or, someone in a business would want to change depreciation rates, well, because it manipulates profit. Yeah. So, change the rate you can make profits go up or down. Yeah. So we, you know.
00:32:17:02 - 00:32:38:06
Chris
I was also think of another one from your, your comments. There is is work working in progress. It's one of the big one is that the that do you don't you. You did it actually happens right in the end. Or you know all those kind of things. And there could be a totally legitimate reason to do that. But I guess your best number one question is why?
00:32:38:13 - 00:32:39:17
Tom
Yeah.
00:32:39:19 - 00:32:49:03
Chris
And not because you're on that, which, but because you need the narrative. You need to understand. Right. Okay. I see you've done that. Why? Why have you done that? What was the objective?
00:32:49:06 - 00:33:11:29
Tom
Yeah, it's largely based on profit more than anything else. So is that one of the one of the the book ones when you're doing your studies, they say, well, why might they have done this? You know, what's the ethical threat that surrounds this and the one that studies always say, well, if you're increase in profit. So it's, you know, 10% gross profit margin or 5% net profit margin, why have they done that?
00:33:11:29 - 00:33:27:13
Tom
Oh, conveniently, the director gets a bonus if they get a 10% off of it. So then sort of like you then go down another rabbit hole to go, okay, what is the reason for doing this when we believe it should actually be in the future period, or be brought back for an expense?
00:33:27:16 - 00:33:54:25
Chris
And again, a lot of that can just be lost in short term, game over understanding what should or shouldn't or yeah, it's beyond the line. As we were talking about. You go, oh, I get that. Okay. I like that one. Another audit myth. Myth that we're going to try and bust audit hasn't really changed. And it probably does have a stigma about being stuck in time.
00:33:54:27 - 00:33:58:27
Chris
But the fact that this is in here, I'm assuming that that isn't strictly true.
00:33:59:00 - 00:34:18:25
Tom
No. I mean, audit audit has changed significantly. There's a there's a lot more, based around sort of internal controls. So what we were saying before about, fraud being detected and stuff like that, it's it's all very based around the controls of a business. So if they have that controls, we make sure that the controls work correctly.
00:34:18:27 - 00:34:39:21
Tom
By just tracing, you know, purchase all the way through, sale all the way through and making sure that they are being applied in an efficient way. There is no more there is more work now that needs to be done to make sure that they are being done correctly. And making sure that we are then reviewing those controls.
00:34:39:23 - 00:35:01:21
Tom
One of the things I wrote down is that auditors must detect all fraud is a misconception, because we are now being given so much responsibility when auditing a company, a charity in the academy to make sure that any errors are picked up. You know, we should be doing that. But there's not actually that's not actually our job to detect fraud.
00:35:01:21 - 00:35:16:21
Tom
It may be that we need to take forward as part of the processes that we're doing. Yeah, I know that. But there have been, you know, some of the big four audit companies that are detecting the missing fraud, but actually the testing isn't surrounded. I'm not.
00:35:16:24 - 00:35:50:07
Hannah
And that it is our job to look at, not to detect the fraud necessarily, but to assess detection risk. Yeah, that is absolutely our our position and our regulator over the last few years, has really increased the amount of work that in order to, needs to do. And, and I don't mean this for anyone wanting to get out your little violins, and I don't mean that what I mean is that if your auditor is asking you more questions, that's why going concern.
00:35:50:07 - 00:36:16:16
Hannah
So going concern is a business's ability to maintain trading for 12 months from the point of signing. That is what we always had to look at. It's part of a fundamental part of our audit file. And even you, you're you're not audited. But every year you should be considering and I know your accountant does this for you because we are your accountants happiness.
00:36:16:16 - 00:36:41:01
Hannah
This you need to consider the the business's ability to continue trading for the next 12 months. Right. And if there is any material uncertainty, then there would be a note in your accounts that would say that which there is not. So don't worry. I know whether you, however, since Covid, the ICA regulator then said okay, now you need to look at 12 months and beyond.
00:36:41:03 - 00:37:03:26
Hannah
Now our initial and I think I can speak for most auditors here. The initial somewhat cynical response to that was oh just great. Grab my crystal ball. Give it give it a shine. You know it's really really difficult. One that hit me quite hard was commented we need to look at the internal control environment. This is literally how you operate your day to day.
00:37:04:00 - 00:37:39:08
Hannah
Okay. And within that we have to look at it systems. Yeah. Now rubber audit partner I thought this is hilarious for me because I have genuinely sent my work laptop to it with a screen that was broken. That wasn't the case. The card walked over it and the brightness had gone all the way down. Now I'm not joking, but I found myself in a position where I'm having to talk to, to companies, to their I.T department or be, you know, an external consultant and discuss firewalls, backups.
00:37:39:08 - 00:38:03:21
Hannah
You know, I do a lot of bedtime reading for this, you know, but the onus on us is increased, significantly. And also for the companies that we're auditing, you know, risk has changed. Think about how we used to communicate now versus how we did ten years ago. Think of I, you know, we're we're in an evolving, an evolving world.
00:38:03:23 - 00:38:34:21
Hannah
And for me, the biggest change and maybe this is more down to how we are as a firm, the culture is entirely auditable. And when we go into an A, into a business or a charity or whatever, in particular, I'm looking at culture, I'm looking at behaviors, I'm looking at patterns because one of the first things we do in a file, in the planning stage is we talk to the client, we research online.
00:38:34:21 - 00:38:56:28
Hannah
So I'm looking at reviews, I'm looking at Trustpilot, I'm looking at press. We're looking at all these things and it starts building a picture. I'm going to call it a set of expectations. Right. Those expectations are further informed by me talking to the client, talking to those charged with governance. So that would be a trustee, a director, etc..
00:38:57:00 - 00:39:19:07
Hannah
And then we actually look at the numbers. So we've done all of that. We've looked at related parties review we've done all of that. We've looked at your key customers. We've looked at your key competitors. We've built that entire picture before. We've actually spoken to you properly. And then we're looking at the numbers and going, right, how do these numbers and the movement aligned with our expectations?
00:39:19:07 - 00:39:20:26
Hannah
And that's where the real work starts.
00:39:20:29 - 00:39:22:21
Chris
Because that's giving it context, isn't it.
00:39:22:26 - 00:39:23:11
Hannah
Totally.
00:39:23:13 - 00:39:47:06
Chris
Yeah. That's the big thing. I mean I do feel for you guys. I mean like for example, that one of the changes that is coming by the looks of the notes is auditors must now assume fraud risk exists. And yet we've been talking very much about how, you know, you're not on a witch. And yet you've been kind of forced down this route because actually, you've got to assume the worst and prove it's not.
00:39:47:08 - 00:40:20:00
Hannah
Yeah. So we've always been required to assume that fraud risk exists. What's changing, what's evolved is that the amount of work that we have to do around this point. So if you think of and I'm not going to give examples, but large firms have been caught out with, with audits gone wrong. Sometimes the findings are that there wasn't enough done on the file in order to mitigate against the risk of fraud, for example, or etc..
00:40:20:03 - 00:40:43:01
Hannah
Patisserie Valerie, I will mention that one is not very often not particularly contentious. We should be doing more is what the ICA has found over the years that every year the ICA will issue where they think audits are going well, because we are required to be audited as auditors by our regulator. So they come in and they look at are we doing the job properly?
00:40:43:06 - 00:40:57:27
Hannah
They collect all of their findings and then they issue, right. This is what we're not doing very well as auditors guys. And this is where we need to focus. And off the back of that over the years, this is where this fraud point has developed, together with going concern it.
00:40:58:00 - 00:41:18:18
Chris
Yeah. Yeah. Yeah. Well I mean it all makes sense. Definitely. They could be those weak points, couldn't they? Inadvertently. For internally and externally. Okay. Another myth audit is the same for everyone. Discuss. Is that correct?
00:41:18:20 - 00:41:46:15
Hannah
No. So, Every sector is faced with different challenges and different pressures, and that's just operating day to day. Yeah. And now translate that into audit audits. Looks very difficult. It looks very different for different sectors and the challenges that those boards represent. So what I've done is I've split between broadly between three sectors that we work with.
00:41:46:17 - 00:42:22:19
Hannah
Right. And I've done a starting quote for each one as if I am a trustee or later for an assembly, as if I'm one of the directors. Right. So let's start with academies. So if I was a trustee, a statement I may be saying is that we are under more scrutiny than we realize. And the reason that is, is because academies, governed by the SFA, which now the Department of Education and as called academies have evolved every year, book gets issued called the Academies Trust Handbook.
00:42:22:19 - 00:42:51:14
Hannah
Oh, wow. And this is basically the Bible. These are laws that we all slip by. And each year the onus has just it's just got heavier and heavier and heavier and in particular on resources for the academies workforce and the trustees. And now the stance appears to be that if things are going wrong, the first place they are going to look is that governance and a really common mistake that we see.
00:42:51:15 - 00:43:21:12
Hannah
And it's something that we identify on the audit and we report back to academies to to the board specifically, we will see examples of very, very good governance. Excellent. In some cases, the problem is not evidenced. So your primary source of evidence as a trustee of an academy is your meeting minutes. And in those meeting minutes you need to show you need to demonstrate financial oversight, effective governance.
00:43:21:14 - 00:43:47:00
Hannah
And with that challenge, governance a challenge. Oh, very, very, very important. The other side of that is within an academy set of accounts. I don't know if your children go to an academy or if you've ever been bored enough to end up on, on their accounts that they're like 60 plus pages long. And much of that is because of a document at the front called the Trustees Report.
00:43:47:03 - 00:44:08:19
Hannah
And this will be a document from the chair of governors, and one followed by, that teacher as well, which basically talks about what's happened in the year, what risks the academies expose, what's happening in the future, and a great place to show effective oversight from trustees and challenge is by actually shouting about it in the trustees report.
00:44:08:21 - 00:44:36:20
Hannah
So when the DfE come in, if they come in, they're seeing minutes that show great oversight, effective governance challenge, etc. then they've got a public document that mirrors, yeah, even if the financials do not paint a great picture. The point is, what are we doing about it? That's the point. Yeah. And and that to me is it's key.
00:44:36:22 - 00:44:38:11
Chris
So that's academies.
00:44:38:13 - 00:44:39:00
Hannah
That is.
00:44:39:00 - 00:44:40:03
Chris
Next.
00:44:40:06 - 00:45:13:00
Hannah
Charities. So if I was a trustee of a charity I would be saying this audit this is about public trust and my responsibility. And actually that's quite scary. And I'll tell you why. Imagine you have a 10 million pound turnover business. You have to run that business. You are responsible for that business. You are responsible for the internal control environment, etc., etc., etc. but then I tell you now let's go the other way.
00:45:13:02 - 00:45:16:03
Hannah
How many hours per week would you want to do that job.
00:45:16:06 - 00:45:17:12
Chris
If it was my company?
00:45:17:12 - 00:45:18:04
Hannah
Yeah.
00:45:18:07 - 00:45:20:20
Chris
A problem, probably a lot more.
00:45:20:22 - 00:45:42:27
Hannah
So if I was to then say to you, okay, you only got 40 hours at best in a year, how would that make you feel about the risk you're taking on and the responsibility? Is it? No it isn't. Not at all. Yeah. I think trustees, both of academies and of charities are in really difficult positions that voluntary positions, none of these individuals are paid.
00:45:43:04 - 00:46:10:23
Hannah
These are great individuals, often very skilled individuals who have taken up their personal time to give to these charities. And they've taken on the responsibility and everything that else, the case with it, but with a really, really short amount of time or, you know, lack of resource. So an audit, good set of auditors having the the audit of the accounts, completed produce timely great recommendations, etc., etc..
00:46:11:00 - 00:46:19:01
Hannah
So important because you want available to have the oversight that that all of that would require because you've only got 40 hours.
00:46:19:04 - 00:46:28:07
Chris
So you are having that personal protection there as well. Then for that person that is only able to do the 40 hours in a year or whatever it might be.
00:46:28:09 - 00:46:28:27
Hannah
Absolutely.
00:46:28:28 - 00:46:45:27
Chris
They might know they're doing their job properly, but to have that audit going on that shows that everything else that I'm going to use the phrase checks and balances, which I probably shouldn't, because in accounting that goes even more financial, doesn't it? But it's across the board. So it's a safety net of within as well as with our.
00:46:45:29 - 00:47:07:02
Hannah
Yeah. And if audits were, as the conception often is a boilerplate. Yeah. Just a load of tick boxes that you're checking if audit. If it truly was that, then I don't think any of these trustees would have come for a. It's because we look at the full picture and we grace ourselves in the in the processes and the systems.
00:47:07:02 - 00:47:11:03
Hannah
It's because of that that hopefully we give these trustees comfort.
00:47:11:07 - 00:47:22:07
Chris
And report it and, you know, have a narrative to it and analytics. Yeah. Because otherwise you'd kind of sit there, go they wouldn't go and join that charity. They took too much risk.
00:47:22:08 - 00:47:27:11
Hannah
And a point that told me earlier, which is very good, is that the donations wouldn't keep coming.
00:47:27:13 - 00:47:47:23
Chris
Absolutely. I mean, it and I think I tried to make the point is, it might not just be that you're not doing anything wrong and let's just call them not, you know, mistake league or whatever, but it's by showing, look, you can't accuse us of everything is there, you know? You know, we've just had suddenly a slightly different topic.
00:47:47:23 - 00:48:14:15
Chris
That's the seminal principle, the fire over in the ski resort. It was at New Year's celebration, I think, wasn't it? Yeah. Now, it's probably a bad example because I think they have been very, very wrong. But they hadn't had a fire risk assessment for four years. I think it was. Yeah. Now, they may not have done anything wrong, but because you haven't had that done for four years, you cannot prove to me that everything's okay.
00:48:14:16 - 00:48:15:19
Hannah
You appear negligent.
00:48:15:19 - 00:48:36:08
Chris
And so it's that's and that's exactly it. Is that going you need to have these done, these audits done to kind of go, no, no, no, no, there is no mate. There's nothing to see here. Yeah. Move on. Even though without that audit you still might have been absolutely 100% above board. It's about showing that there's nothing that you can see.
00:48:36:08 - 00:48:36:20
Chris
Yeah.
00:48:36:26 - 00:48:53:10
Tom
And it gives confidence to people like you know, would you want to give a lot of money in a well or would you want to give a lot of money. You know that you've you've earned yourself to a charity that is then going to spend it on a hot tub, for example, like the, you know, the whole captain Tom thing.
00:48:53:10 - 00:49:05:03
Tom
He raises his money, walk around, and his daughter then bought a hot tub. That was then we come in and then provide that, you know, additional level of security that people would then go, okay, well, I feel confident giving money to this charity equal.
00:49:05:03 - 00:49:07:00
Chris
Time or whatever.
00:49:07:03 - 00:49:18:26
Tom
Yeah. Because they are benefiting the community. They're benefiting, you know, their, their cause that they reporting in their accounts. But also, you know, it's getting to the right place.
00:49:18:28 - 00:49:43:23
Hannah
So there's one point that I think it's really important to build on here is that an audit isn't a failsafe. Right. So yes, an audit it an audit is is comprehensive. Okay. They're not cheap either. So you should absolutely be getting your money's worth. However, it's a little bit like, what were the jewels that were stole recently?
00:49:43:23 - 00:49:47:01
Hannah
Rather, you know, before Christmas few months ago.
00:49:47:03 - 00:49:49:04
Chris
Was that the ones at the Louvre away?
00:49:49:05 - 00:50:00:27
Hannah
Yes. So you can imagine what the security is like that, right? Yeah. And in my brain, I'm like, there's lasers, and I just don't want to get that. There was a sale. Yeah. Hello.
00:50:01:02 - 00:50:03:05
Chris
Tom Hanks was brilliant. Enjoying this as.
00:50:03:05 - 00:50:36:24
Hannah
Well. Yeah, I was sure that, you know, that security was fairly robust. Yeah, yeah. However, it didn't stop the theft. Very herring. Yeah. It just look right. So audit isn't a complete safety net right. It doesn't mean that nothing is wrong. It means that you know, we've throughout the course of our work, which is held to a certain quality standard, an international quality standard on auditing that our regulator is really, really hot on.
00:50:36:27 - 00:50:59:24
Hannah
It means that we've conducted our work to that standard and therefore, and nothing has seen the statement show a true and five year. That is ultimately what the audit. And it's a, it's a public, it's signifying, public statement signifying trust. Okay. But it's not a failsafe. Right. It doesn't mean that there was nothing wrong. We talked about samples earlier.
00:50:59:27 - 00:51:10:11
Hannah
Somehow. I don't know why we auditors just seem to be good. It is often random and haphazard, but we do seem to be good at picking ones that. Yeah, yeah, yeah.
00:51:10:14 - 00:51:11:27
Tom
One. That's right. Yeah.
00:51:12:00 - 00:51:12:22
Hannah
And that's audits.
00:51:12:22 - 00:51:13:17
Chris
Isn't that.
00:51:13:19 - 00:51:33:09
Hannah
Generally. Yeah. No, not just us. Yeah. But you know, throughout our best efforts, it doesn't mean that you're always going to, to find something that's wrong. And I think that's something really, really important to point out, because often when the public see it go to part for certain companies or, you know, God forbid, there's been some horrendous fraud.
00:51:33:09 - 00:51:56:00
Hannah
You know, Maxwell, you know, that that that ended up in people lost their lives and people commit suicide. That's not a joke. But you cannot you cannot find everything. In some cases, like I might. I wish we could. Yeah, but but you can't, and that's that. That's the reality. Very much like, you know, the loses. There's only so much security.
00:51:56:00 - 00:51:58:21
Hannah
I mean, I'm sure they're amending. That is, I just don't.
00:51:58:23 - 00:51:59:08
Chris
Yeah, yeah.
00:51:59:10 - 00:52:01:06
Hannah
But it's not a complete failsafe.
00:52:01:06 - 00:52:17:19
Chris
For the same as I.T. You mentioned that in the audit. The it something comes into it and it's like just because you've got all of the security, that doesn't mean it's not going to get breached. But then that's why it's looking at all the other areas. What happens if it does go wrong. Therefore it's not a fail safe to go.
00:52:17:19 - 00:52:37:23
Chris
It now won't go wrong. It's about okay, what do you need to do? What's the cover that you've got? What's the reactions all set in motion. Ready. If you need to press the button. So it makes sense. It kind of makes charities. But I noticed your third one you were going to look at here. Yes. It's not just commercial organizations but very specific here.
00:52:37:23 - 00:52:47:03
Chris
You've gone for this. Yeah. And this this is relevant to me because it suddenly opens this up to more areas of commercial organizations by the sounds of it.
00:52:47:05 - 00:53:29:08
Hannah
So yes, this one is aimed, corporate entities, but SMEs. So that is small to medium enterprises. Yeah. And the the quote I've come up with here is that HMRC is quietly paying more attention to people like me. Now, we don't know now what is on the Revenue's agenda. However, I think it's when I came up with this, I kind of threw this across several people, in the firm, and the response was unanimous that, yes, this is absolutely what we think that HMRC isn't necessarily worried about these big corporates at the moment.
00:53:29:08 - 00:54:00:05
Hannah
And they are very quietly focusing on the smaller guys. So when you're when you have things going through, like we talked earlier about personal spend, you know, taking the biscuit with personal spend, the whip that you talked about. Yeah. That's trying to manipulate profit benefits, not being taxed in the way that they should or one that they are very often at the moment is your dividends that you've been taking from a company not reflecting what's on your tax return.
00:54:00:08 - 00:54:09:25
Hannah
Things like that or what the revenue is quietly focus on focusing on. And in our opinion, and I think that's a very important message for for SMEs.
00:54:09:27 - 00:54:29:13
Chris
I mean, it does sort of show that whole thing though, is even where you've taken us down those different avenues is that it's a very different picture. So audit definitely is not the same for everyone. If you go back to the original headline, it's very different what they need to do, why they need to do it, what you guys have got to look at in more detail.
00:54:29:15 - 00:54:46:16
Chris
So there we go. That was another one, busted to bring this all back together and wrap this up into a final conclusion. Your phrase that you throw at me here is if someone could only do three things, what would they be?
00:54:46:18 - 00:55:25:07
Hannah
Capture evidence. We talked earlier about academies, evidencing good governance in minutes, trustees report, etc. it's not just academies. Corporate boards and charities should be doing the same at board level. Operationally. Keep the paperwork. Yeah, yeah. If you are exercising any areas of judgment, you've got valuations for land and buildings, things like that. You get the paperwork and I know it's not nice to pay a surveyor a lot of money to come up with a somewhat made up figure in the account.
00:55:25:13 - 00:55:44:22
Hannah
But play the game. Yeah, yeah, yeah, it's just play again. But it's good evidence that, you know, even if you have made certain decisions, the important bit is the justification and then the evidence of that justification, because once you slapped on it becomes quite difficult. And so yeah, that's the number one I would say. Yeah.
00:55:44:22 - 00:56:01:06
Tom
And then from all sides when we're then auditing, it makes our lives easier. We don't have to ask as many questions because there's two things there. You know, it's all documented. We can say, okay, well what's this transaction? You know, where's the evidence for this? Oh, there's an invoice. You know, there's there's the meeting minutes and we can we can then use those to.
00:56:01:06 - 00:56:21:19
Chris
Make a and I never realized quite how important minutes actually are. And I picked up on one of the phrases you used is about challenging to see. And the evidence in the minutes that someone's gone, why have we done that? Know whatever those kind of things. And and that makes sense. So capture decisions with evidence that that definitely stands out to me.
00:56:21:22 - 00:56:22:04
Chris
Yeah.
00:56:22:06 - 00:56:47:06
Hannah
Second one think risk first not necessarily numbers. So we've already busted this on on this episode so far. However, people think audit is just about pulling apart numbers and that we're just we'll just be shut in a room just thinking about order. I'm just the figures and the calculator. Maybe some kind of paper? No, it's about risk.
00:56:47:08 - 00:57:13:00
Hannah
Now, if it's about risk for us, it should absolutely be about risk for you. And when thinking about risk, identifying them, deciding how likely they are, what the potential impact may be on your business or your reputation, etc., when when doing that and then deciding how you may mitigate from them and mitigate them or even tolerate them.
00:57:13:02 - 00:57:39:03
Hannah
You can't just do that once and say, oh, well done. Yeah, that's done. Yeah. It's fluid. So in larger entities, what we'll see is something called a risk register, right? Really as a firm, we have one really, really useful document. The moment this document becomes useless is when it stops being fluid. So visiting a risk register, really, really important.
00:57:39:05 - 00:58:01:00
Hannah
But also such a good tool. Yeah, really, really useful tool to have. So if you think risk first as a business, I need I'm not necessarily suggesting you need to go and create a risk register, etc., etc.. I'm saying think about the risks that your organization is exposed to. But you could have risks internally. Control risks you could have.
00:58:01:00 - 00:58:16:25
Hannah
You talked about detection risk earlier with fraud. You might be a business that takes a load of cash, you know, but you've got a high turnover of staff. You know, things like that. Think about those risks and what effect they could have. And can you do anything about them, or do you want to do anything about them?
00:58:16:27 - 00:58:28:06
Hannah
And I, I would go as far to say, if that is your approach when it comes to audit, you'll be in a better position, much better position. Do great.
00:58:28:07 - 00:58:51:06
Tom
Yeah, definitely I think yeah. When I say that audit is a the view and the view of auditors is that, well, primarily numbers but actually no, it's everything that then surrounds that. First myth that we looked at is, is it just the numbers now is, you know, it's everything that comes with it. It's the controls. It's the the risk of everything within it.
00:58:51:09 - 00:58:54:03
Tom
And how they've actually then got to those numbers.
00:58:54:06 - 00:59:08:26
Chris
Now, I definitely called that because those who was hearing you that comment about the auditors being put in a room with the calculated penalties, that that was always that perception. Oh my gosh, the auditors are in next week. Right. Let's get them in and get them out as soon as we possibly can. It's like, well actually no it isn't.
00:59:08:26 - 00:59:30:13
Chris
They're just not just there to to look at your account system and just do the numbers. There's there's a lot more to it. I'm going to say the third one of the final steps, because I think this sounds better coming from someone outside of optimum for this one, because I do agree with it. And that is choose your auditor wisely.
00:59:30:16 - 00:59:51:01
Chris
You're not just buying the certificate, you are buying the expertise, the judgment, the perception, the interpretation of these experts. And so it is right to choose. And I just felt that I wanted to say that one to start with, because of course you're going to say that about optimum without question. And, and I do back that one up.
00:59:51:03 - 00:59:56:23
Chris
But anybody does need to choose wisely. They have a choice, don't they.
00:59:56:25 - 01:00:23:00
Hannah
Yeah. Yeah you do. Yeah. And I think it's not just audit with most professional services what you're buying are people right. Relationships. That's what you're buying. So in the specific specific to an auditor you're buying the people and their approach don't necessarily go for the cheapest quote I know it's expensive and I know I know it's expensive.
01:00:23:07 - 01:00:45:02
Hannah
And believe me, there are not significant margins in audit for the amount of stuff that we have to do in paperwork. We have to fill out. But choose a pragmatic auditor that who's, you know, personality and approach fits with what you need and that can at times be different to what you want. Yeah. And I think that's a very important distinction.
01:00:45:02 - 01:01:04:22
Chris
Not a computer says no kind of black and white interpretation. It's like not taking boxes. There's there's a lot more to the story. Yeah. And I've got that just from this alone that it makes sense. I think that brings us round to a close on that one. The whole idea was to bust some myths, on on audits.
01:01:04:22 - 01:01:28:04
Chris
But equally, I think it's been a very informative, discussion that we've had about it a lot more. And I know it's, it's not necessarily a most popular topic, but I guess it's a necessary evil. But hopefully what today's conversation has done for everybody is to also open up how it is to your advantage. It is show.
01:01:28:05 - 01:01:42:22
Chris
Let people have it externally, have the confidence in you that you feel they should have. And this is where you come in and you're able to to evidence and interpret and everything else there. So it's been absolutely brilliant. Thank you so much for chatting with us.
01:01:42:28 - 01:01:43:28
Tom
Thanks for having us.
01:01:44:01 - 01:01:44:24
Hannah
Thank you for having us.
01:01:44:25 - 01:01:57:18
Chris
You said before and you were worried that it was a dry topic, but it's such a deep, you know, so much information around it that I think it's really been educational. So thank you very much.
01:01:57:18 - 01:01:58:24
Hannah
Good. Cause you enjoyed it.
01:01:58:26 - 01:02:14:28
Chris
Thank you for joining us, everyone. If you've got any questions, even if it's, you know, early stages or over, please get in touch with everybody. Opt Skoda UK is the website and you can get in touch with the team and, we'll see you on the next episode. Cheers.