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All you need to know is that you’ll always be over it. It’s a magic number that somebody with zero clue comes up with. This person has a huge incentive to make the budget low, which results in high realization and a big bonus at the end of the year. But, it’ll always be unrealistic and poorly thought out. Then when someone say “ hey auditor - why did it take 6 hours to do this instead of the 3 we budgeted for?” You can say “well my manager and senior are idiots. They should have known it would take longer.”
That’s how it works
Are hours included in the engagement letter and if we go over, we bill for overages in the end of the audit? Is this why we track our time? To see if an engagement is profitable, based on estimated time versus actuals? I have a hard time understanding why we need to track our time, since we are all salaried, minus the need to track utilization on who’s being billable and who’s not. Thanks in advance!
What Manager 1 said for all FFP engagements (which are many). There exist some level of effort audits out there, however, which are billed on actual hours incurred and for those, tracking time is the only possible way to bill the client. Usually they have caps, but without tracked hours, these engagements would not be able to invoice the client.
your hours are worth a certain $$ value. an audit budget is established in relation to the negotiated fee in order to plan how much of that value will be recovered in billing. e.g. you are worth $100/hr, job budgeted 20 hrs, fee of $1,500 = 75% planned recovery rate. As a result, for every hour you track to this job, the firm records $75 of revenue. if the job comes in under/over budgeted cost at planned recovery rate, once all the billing is complete, the difference is an additional true-up gain/loss to revenue and is tracked as part of a scorecard for the partner and/or their line of business within the firm.
the problem is that while it would seem in everyone’s best interest to establish an appropriate budget, everyone has to achieve unrealistic recovery rate targets when they budget.