Happy Black Friday!
After a wonderful family holiday on Thanksgiving Day, many Americans celebrate by going shopping! Black Friday, the day after Thanksgiving Thursday, is typically the busiest shopping day of the year. Retailers entice consumers with substantial discounts, often with unusual conditions (e.g. sales from midnight to 2am, door busters, double coupons, etc.) Bargain hunters can spend days or even weeks preparing their day by poring over sales flyers and executing online searches.
Even for an experienced shopper, Black Friday is a moving target. Obviously, there are different products on sale year-to-year. More significantly, the retailers keep changing the “rules”, necessitating an adaptive strategy for the clever shopper to maximize their shopping effectiveness. Some stores open at midnight Thursday night, others not until 6am on Friday. Some deals are best at certain times of day post-opening. Some stores hand out wristbands for limited-stock merchandise. Some adopt a more existential “kill or be killed” approach.
Formulating the right plan requires a prudent shopper, hoping to maximize Black Friday efficiency and effectiveness, to understand all the variables and map out a unique strategy every year.
Consider a parallel statement for auditors: “Formulating the right plan requires an Auditor, hoping to maximize audit coverage efficiency and effectiveness, to understand all the variables and map out a unique strategy every year.”
Does this statement sound familiar? Each year’s audit plan faces many of these same challenges. Where has leadership changed? What new lines of business has the firm entered? What market forces have been at work in the industry? How has the firm’s strategy evolved? What about its risk appetite? These are the “Black Friday Ads” that the auditor must sift through in order to establish a great plan for efficient, effective coverage.
A Black Friday shopper in 2018 may have determined that they need to go to Target at midnight, camp out on the sidewalk for four hours, then get three big-ticket items before going to Best Buy or Walmart, ultimately making their way to the mall, Office Depot, and Macy’s. This may be the ideal plan to achieve their 2018 Black Friday goals. However, attempting to execute that same plan in 2019 will almost certainly lead to disaster. The stores will have changed their products, and many will have changed their hours of operation or the terms of their deals. A savvy shopper will only make this mistake once.
Why, then, do auditors attempt to fundamentally reuse prior years’ audit plans for the current year?
For every auditor, awareness of critical variables is key to effective planning. It’s essential to treat annual planning as a comprehensive exercise, rather than as a “tweak” to prior work. Once the audit team has identified those variables that will contribute to planned coverage type and frequency, it must refresh those variables and formulate its plan based on recent data. “We did this last year” is not a valid reason for inclusion or exclusion this year.
Happy Thanksgiving!? Happy Shopping! And Happy 2020 Planning!