Auditor Angst

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Unprepared clients mean longer audits, longer hours, and, sometimes, auditor burnout. "Some of our toughest decisions are when one job hasn't wrapped and the next job is starting — what do we do?" says Eisner's Rosen. Auditors have the option of leaving the audit unfinished and circling back when time permits, something Eisner stipulates in many of its engagement letters. In reality, though, the firm will bend that rule for clients with SEC or other filing deadlines, says Rosen, since few auditors want to be known for making a client miss a deadline.

Another big problem, say auditors, is that CFOs fail to seek their input before making major accounting decisions involving such matters as debt agreements, leases, or asset sales. More than half the respondents to CFO's survey ranked this among the top three things clients do that reduce the efficiency of an audit. "Tell the auditors [about major decisions] when you're in the planning stage, and give them the agreements to look at," advises Neuhausen. "Don't present them at the end of the year as a surprise."

Of course, clients claim that such cases are innocent omissions, and they often are. But Neuhausen says that sometimes he "gets the sense that CFOs think if they just present it as a fait accompli, the auditors will just go along with whatever they did and they can slip it by them."

Complexity Cuts Both Ways
As for longer engagements, auditors are quick to admit that clients aren't the only ones to blame. Accounting complexity now throws up many hurdles, making it difficult for auditors to breeze through assignments. More and more of their questions need to go to the national office, or at least to another expert in the firm. "I've been an audit partner a long time, and 10 years ago I didn't consult that much, because things weren't that complicated," says Wieman. Today he brings in subject-matter experts far more frequently, thanks to complex pronouncements such as FASB Interpretation (FIN) 48 for income taxes. "There are a lot of things out there that individual auditors can't be expected to know on their own," he says.

Fair value is another such issue. Both auditors and CFOs surveyed by CFO say that it is one of the top factors that will add to audit costs in the coming year. That's mainly because it means extra work for both the company and the auditors. "When we go to full fair value, I don't think there will be enough experts around for everyone," says Wieman.

Many auditors say they try to work with a company in advance on fair-value issues so that the numbers don't come as a surprise during the audit. Still, the amount of work involved in estimating fair values is daunting. When it comes to valuing thinly traded securities, for example, a company could once rely on a single broker quote. Now the accounting staff needs to either interview the broker about how she or he arrived at the estimates, obtain multiple broker quotes, or supplement a single quote with some modeling based on recent trades of similar securities.

Yet another reason auditors need more time is the PCAOB's Auditing Standard No. 3, which prescribes general requirements for audit documentation. Before AS3, auditors used to have casual discussions with clients about such topics as valuations and cash projections and then write a general memo. Now they need to drill down much deeper and document each step along the way. "If you don't talk about every assumption and how you tested it, you could be in trouble," says Wieman.

Judgment Days
What can be done to break the audit logjam? Regulators have been working on various measures to ease external pressures on auditors. One, the recently implemented AS5, is already having an effect. The standard allows auditors to focus on the riskiest areas of internal controls rather than probe all controls in detail.

AS5 "was like taking a breath," says Robert Kueppers, deputy CEO of Deloitte. He says the standard signaled a shift away from the PCAOB's pressure on auditors to "do more, do more, do more." So far, it has reduced the time on engagements, albeit not dramatically so. "AS5 has at least allowed us to hold the line on audit costs," says Kueppers.