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Lean Audits & Leaner Audit Fees

Presented by:

Robert F. Watson, CPA & Kevin D. Warren, CPA

Welcome to Washington, D.C.

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Washington, D.C. Fun Facts • There is one lawyer for every 19 residents and 74 lobbyists

for each U.S. senator.

• More wine is consumed per person in Washington D.C. that in any state in the U.S.

• The Library of Congress contains 535 miles of bookshelves.

• D.C. averages 39 inches of rainfall each year – more than Seattle.

“Outside of the killings, Washington has one of the lowest crime rates in the country.” – Marion Barry

Outline

• LEAN

• Six Sigma

• LEAN Six Sigma

• Industries/Processes Covered

• Audit Process

• LEAN Six Sigma and the External Audit

• New Auditing Standards – How the Clarity Standards Will Impact You

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What is Lean?

What is Lean? • Focus is on eliminating waste

from processes while listening to the voice of the customer.

• End customer can be internal or external.

• Lean is the purposeful elimination of waste which frees capacity and resources while only doing value added activities. Results in a better use of resources.

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History • Waste reduction concepts

have been around a long time

• Benjamin Franklin and Poor Richard’s Almanac

• Henry Ford and “mass production”

• Dawn of the “efficiency experts”

• Toyota and “pull production” (Toyota Production System)

History

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The Efficiency Expert

Types of Waste DEFECTS

OVERPRODUCTION

WAITING

NOT UTILIZING PEOPLE’S TALENTS

TRANSPORTING

INVENTORY

MOTION

EXCESS PROCESSING/ OVERPRODUCTION

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More Types of Waste

Unsafe conditions

Underutilization

Confusion

Examples of Deadly Types of Waste in the Office

• Defects – Data entry errors – Employee turnover

• Overproduction – Printing paperwork (that may change) before needed – Processing an order (that may change) before needed

• Inventories – Purchasing office supplies before needed – Unread mail

• Over Processing – Re-entering data into multiple information systems – Making extra copies

• Human Motion – Walking to copier, printer, fax

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• Transportation & Handling – Multiple hand-offs of electronic data

– Approvals

• Waiting – Slow computer speed

– Waiting for information from customer

• Confusion – Any missing or misinformation

• Unsafe or Unergonomic – Conditions causing carpel tunnel/eye fatigue

• Underutilized Human Potential – Restricting employee’s responsibility to make routine decisions

– Highly paid staff doing routine tasks not requiring unique expertise

Examples of Deadly Types of Waste in the Office

Toyota Definitions

MUDA = Waste in any form MURA = Unevenness, overburden, strain MURI = Demand that exceeds process and equipment capacities

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Lean Goals

• Improve Quality

– Understand what the customer wants

• Eliminate waste

– If it does not add value, get rid of it

“It is not necessary to change. Survival is not mandatory.”

– W. Edwards Deming

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What is Six Sigma?

• Quality! • Consistency

• Capacity

• Value

History of Six Sigma • Developed by Motorola back in the 1980s

• Further evolved by GE in the 1990s under Jack Welch

• Focus on product/process improvement

• Identify and remove the causes of errors

• Minimize the variability in processing/production

• Six Sigma – the desired defect-free statistical rating of six standard deviations between the process mean and the nearest specification limit (or 3.4 defects per million)

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Six Sigma – Methodology for an Existing Process

Six Sigma – Certification & Focus

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Lean Six Sigma

Industry Applications

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Audit Process

• Professional standards specify certain tasks must be performed:

– Engagement acceptance/continuance

– Planning

– Fieldwork

– Review and supervision

– Reporting

Critical Definitions

• Auditor

• Attorney

• Actuary

• Economist

= One who arrives after the battle is lost and bayonets the wounded

= One who arrives after the auditor and strips the bodies

= An accountant without a sense of humor

= Someone who didn’t have enough personality to become an accountant

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Lean Six Sigma & Audit Process

• Questions to pose:

– Does the work provide value to your organization?

– Does it provide value to your external auditors?

– Does it meet a required standard?

• If all three are “No” the work does not need to be done

Lean Six Sigma & Audit Process

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Anthropomorphic Nouns

“Giving money and power to government is like giving whiskey and car keys to teenage boys.”

– P.J. O’Rourke

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New Auditing Standards – Clarity Standards Overview

• Converge U.S. auditing standards with International Standards on Auditing (ISA)

• More principles-based approach to standards setting

• Effective date

– Years ended after 12/15/12

Significant Changes to New Auditing Standards

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Contract Accounting in D.C.

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Robert F. Watson, CPA Partner Bob@jmco.com 352-378-1331

Kevin D. Warren, CPA Senior Manager Kevin.Warren@jmco.com 850-386-6184

Questions