PROCEDURE AND METHODS 1. Advance notice to employes whose accounts are to be audited.—Where the proprietor has no reason to suspect that fraud or dishonesty has taken place, there seems to be no reason why he should keep se cret his intention of having an audit made. As a matter of fact, if the employes know of it in advance, they may be able to so arrange the work as to facilitate the task of the auditor. Moreover, if audits are to be regularly made thereafter, employes will naturally expect the auditor to appear at regular intervals.
The objection that is raised to the practice of giving employes advance notice of the audit is due to the fear that they may take steps to cover up shortages or dishonest practice. It is true, of course, that cash iers sometimes temporarily borrow funds of their em ployers and will endeavor to make good the shortage' if it is known that an audit is about to be made.
If irregular practices prevail, there is considerable advantage in having audits made unannounced, or at irregular intervals. Some of the large corporations, having numerous branches and maintaining their own auditing staff, believe firmly in the practice of making audits unannounced, even to the local managers. The first inkling given that an audit is to take place is when the auditor walks into the office of the branch, on the afternoon of the day preceding the close of the fiscal period, and counts the cash at the close of busi ness.
2. The. initial step in the the first audit of a concern, the principal, together with probably a senior accountant who will be in direct charge of the engagement, and the necessary number of juniors and assistants, will present themselves at the client's office. If the principal thru whom the arrangement for the engagement was made is not present, the senior ac countant in charge will probably bear proper creden tials addressed to the management. It is no doubt true, in the majority of cases, that the first work un dertaken in the audit will be the verification and count of the cash. While one of the assistants is engaged in this task, it is likely that the principal, or the senior accountant, will be engaged in laying out the audit program.
3. First audits are usually more thoro and com first audit of a business organization is usually more thoro and more complete than subse quent ones, because the auditor must familiarize him self with the nature of the business and local condi tions. The necessity for making a thoro examination would be all the more pressing if the accounting sys tem did not provide an adequate method of internal check. As a result of the thoro examination on the first audit, the auditor will probably be in a position to make a number of constructive criticisms, or to suggest methods of internal check, which will mate rially reduce the amount of detailed work necessary on subsequent audits. If such suggestions have been acted upon the auditor at the next examination will be in a position to rely more upon the system of in ternal check installed and may consequently reduce the cost of the audit to his client, or else devote the time which would ordinarily be employed in laborious checking to the development of still more approved methods and practices.
4. Audit program.—In the process of familiarizing himself with the system employed, the auditor will probably make a list of the books of account, and such other necessary notes as to the details of the sys tem, so that he will be in a position to intelligently . supervise the work of his assistants. It will probably be unnecessary for the principal to devote his entire time to the engagement but he will leave in charge a competent senior. From time to time, either by per sonal visits or by scrutinizing carefully the working papers brought to him at the close of the audit, the auditor will be in a position to assure himself that the work has been correctly done.
The principal will have possessed himself of all the necessary information with reference to the system and the books of account, in order that on subsequent audits he can prepare an audit program for his as sistants with very little trouble. He may secure the information by reference to the working program of the first audit.