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Perfect Audit Work Means Nothing Without This One Critical Skill

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“If it’s not documented, it didn’t happen.”

This statement from a government auditor stopped Sam Mansour cold during his career, and it should stop you, too. Say you’ve just completed four hours of meticulous audit work, but your reviewer spends an hour trying to decipher what should take 15 minutes to review. That’s not just frustrating; it’s a documentation failure that could sink an otherwise excellent audit.

In a recent episode of the Audit Smarter podcast, hosts Abdullah Mansour and Sam Mansour, CPA, explain why documentation is a persistent weakness in audit files across firms of all sizes. Despite years of training and countless review comments, auditors continue to treat this critical skill as an afterthought—a box to check after the “real work” is done.

When Great Audits Fail

Auditors spend hours conducting fieldwork, asking all the right questions, pulling perfect samples, and demonstrating exceptional professional skepticism. Yet months later, during a peer review, the work receives a failing grade.

Why? Documentation so unclear reviewers couldn’t understand what they actually did.

“If you don’t document it properly, how is anyone supposed to know what you actually did?” Sam asks. “You could say you audited certain sections. You could say you did these procedures, but if you don’t actually document that in a memo and show the work that you did, it’s really difficult for anyone to follow.”

Documentation is the sole evidence of audit quality, so it’s more than a compliance requirement; it’s “how you tell the story of that audit.”

The Four Essential Questions

Every work paper must answer four questions to tell that story effectively:

  1. What was tested?
  2. Why was it tested?
  3. How was it tested?
  4. What were the results?

These are the minimum requirements for documentation that can stand on its own. Yet Sam regularly encounters work papers that fail to answer even one of these questions clearly.

Consider Sam’s experience auditing farm accounting, where crop harvesting created unusual transactions. Rather than simply verifying journal entries and moving on, he documented how the industry worked and retained professional literature explaining the accounting treatments. “Instead of just verifying the journal entry and moving on, I actually retained documentation showing why that journal entry was proper,” he explains.

Too often, Sam encounters the opposite: PDF files dropped into audit folders with zero context. “You open up a PDF file and you’re like, well, what is this thing?” Even when a document clearly displays “depreciation schedule,” without annotations explaining which procedures were performed or how it links to other work papers, it’s useless.

The problem also extends to client communications. Sam frequently sees emails from clients copied directly into audit files without any auditor analysis. “A client provides an explanation of something via email. We’ll grab that email and stick it into the audit file. And it’s like, okay, so what is this?”

The Hidden Cost Multiplier

When Sam pulls a team member into his office to discuss documentation, the conversation often starts with simple math. 

Work that takes four hours to perform should require only 15-20 minutes to review when properly documented. But poor documentation forces reviewers to spend four times that amount. “You are making me work harder,” Sam emphasizes. “It’s literally taking me four times as long because your documentation is so confusing.”

This time multiplication is even more costly when you consider billing rates. Reviewers often bill at nearly double the rate of preparers. When poor documentation forces a manager to spend an hour instead of 15 minutes on review, the budget impact isn’t just the extra 45 minutes—it’s 45 minutes at a significantly higher rate.

But time and money are only surface-level costs. The deeper damage occurs when overwhelmed reviewers can no longer catch critical issues. “You increase the risk of audit deficiencies during a peer review or inspection,” Sam warns, “because you’re making it so much harder for the reviewers to catch everything.”

The Learning Gap

Perhaps the most insidious cost is the lost learning opportunity. When documentation is vague, reviewers can’t provide specific, actionable guidance.

“If you detailed it out step by step, a reviewer could say, ‘Hey, did you think about this step?’ or ‘Why don’t you consider doing this?”‘ Sam explains. “But when it’s vague, it’s like, I have no idea what you did.”

This feedback vacuum stunts professional development. A team member once told Sam that review comments felt overwhelmingly negative: “There’s never any positive feedback. It’s always negative.” While Sam initially dismissed this as just part of the process, he later recognized that when documentation is consistently poor, the review process becomes purely corrective rather than developmental.

The career implications are severe. “When people in auditing are disorganized and don’t document well, the disorganization comes through in their documentation,” Sam observes. “And if you’re trying to rise up through the ranks, it’s not a good sign.”

Building Documentation Excellence

“Document as you go. Document as you go. Document as you go.”

Sam repeats this mantra three times for emphasis, calling it “one of the biggest pitfalls for myself and for other people.” The memory problem is more severe than most auditors realize. “Your memory is not as great as you think it is,” Sam warns. “You lose bits and pieces as time passes.”

Creating Standalone Work Papers

The solution is to build documentation habits throughout the workday. “Think of every work paper as a standalone work paper,” Sam emphasizes. Each document needs clear annotations explaining what it is, why you included it, and how it connects to other work papers.

For example, when pulling in a depreciation schedule provided by the client, don’t just drop it into the folder. Add annotations explaining its purpose and link it to related testing documentation. This bi-directional linking creates what Sam calls “breadcrumbs” that allow reviewers to follow the audit trail effortlessly.

The Self-Review Strategy

Sam offers a useful tip for learning from feedback: “Open up a Word document, and when you get review comments, copy them into that document.” Label each comment by work paper reference. Before submitting future work in similar areas, consult this personal feedback log.

“Look through the review comments you received last time and see if they apply to this work paper,” Sam suggests. This prevents reviewers from having to give the same feedback repeatedly, which can be a major source of frustration.

With today’s technology, there’s no excuse for poor documentation habits. “You can record and get transcriptions of calls. You can take notes on your phone. You can take notes on your computer,” Sam notes. “There’s no reason other than—I’m going to be honest—laziness.”

Templates and Coaching

Templates are another helpful tool, but Sam cautions against using them blindly. “You can leverage templates to guide you through the process,” he explains. When creating standardized emails, add personal touches: “Hey, how was the trip last year?” before transitioning to standard language.

For managers, the key is coaching rather than just correcting. “Walk them through well-documented files to show them what good documentation looks like,” Sam advises. When someone does exceptional work, “point out the win” during wrap-up meetings. This positive reinforcement creates a culture that celebrates good documentation rather than merely criticizing poor documentation.

Your Path Forward

Documentation determines whether your audit succeeds or fails, and Sam’s framework for excellence is surprisingly straightforward:

  1. Every work paper must stand alone – readable without hunting through other files
  2. If reviewers need to ask questions, it’s not done – documentation should answer everything
  3. Remember the triple benefit – good documentation reduces stress, speeds reviews, and protects the firm

The choice is yours. You can continue treating documentation as an annoying afterthought, forcing reviewers to waste hours deciphering your work while your career stagnates. Or you can implement these strategies, transforming documentation from your greatest weakness into your most powerful professional asset.

Want to dive deeper into these documentation strategies? Listen to the full episode of the Audit Smarter podcast, where Sam and Abdullah share additional techniques and real-world examples to transform your approach to audit documentation. Your future self (and your reviewers) will thank you.

This CPA Spent Five Years Modernizing His Firm Before Making a Move to Buy It

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In 2012, Tim Abbott walked into a Chicago accounting firm that still tracked tax returns on a clipboard. No electronic filing, no digital documents, just alphabetical lists checked off by hand. Eight years and one pandemic later, he owned that practice and another 40-year-old firm, and had transformed both into a thriving $2.4 million modern business while keeping nearly all their legacy clients.

In this episode of “Who’s Really the Boss?”, hosts Rachel and Marcus Dillon get Abbott’s story about acquiring and modernizing two multi-generational accounting firms in the Chicago suburbs. The journey involved a delicate balance between honoring tradition and driving innovation.

Starting With “No Is a Complete Sentence”

Abbott’s path to firm ownership began with an unexpected philosophy. “The best piece of advice I received,” Abbott shares, “is that no is a complete sentence.” This mantra guided his transformation of M.J. Vandenbroucke from a clipboard-based operation into a modern firm serving law offices, financial planners, and medical practices across the Chicago suburbs.

Abbott brought a fresh perspective to a firm frozen in time. With three daughters at home and a wife working as an elementary school nurse, he understood the importance of setting personal and professional boundaries. That discipline proved essential when navigating the complexities of modernizing practices that had operated the same way for decades.

The firm he joined in 2012 wasn’t broken; it was just stuck. With ten employees, many boasting 20 to 35 years of tenure, M.J. Vandenbroucke had successfully served clients since 1970. But success had bred complacency. The firm ran entity returns through UltraTax while processing individual returns in ProSeries, losing K-1 import capabilities. When Marcus Dillon learned about this setup, lost efficiencies immediately came to mind.

The Art of Incremental Change

Rather than shocking the system with sweeping reforms, Abbott orchestrated a deliberate five-year modernization plan. Each year from 2012 to 2017 brought one major improvement. Electronic filing replaced paper submissions. Digital file cabinets eliminated physical storage. Client portals opened new communication channels. Direct deposit streamlined payments.

“When you’ve been doing things largely the same way for 30 years, it can be challenging to change,” Abbott observed. His measured approach respected the staff’s experience and the clients’ expectations. This patience wasn’t passive; it was strategic.

Abbott received some invaluable advice about acquisitions: “Unless something is functioning horribly, don’t change anything you don’t have to” during the first year. By observing existing workflows and understanding why certain processes existed, he could distinguish between outdated habits and practices that genuinely served clients well.

This incremental approach delivered measurable results. Staff gradually embraced new technologies without feeling overwhelmed. Clients experienced improvements as enhancements rather than disruptions. Most importantly, the firm maintained its operational stability while building capacity for future growth. By 2017, Abbott was ready to acquire the practice, having proven that modernization didn’t require revolution.

When Coffee Leads to Acquisitions

Abbott’s second acquisition offers a lesson in professional serendipity. At a conference, he sat next to a CPA from New Jersey who mentioned knowing someone near Abbott’s Chicago office. “That casual breakfast conversation led to coffee meetings,” Abbott recalls, which evolved over two years into an acquisition agreement finalized in 2020, during the pandemic.

The 75-year-old owner of this second firm had no succession plan. Like M.J. Vandenbroucke, this practice had operated for nearly 40 years with established processes and long-term client relationships. Abbott acquired the business and moved the entire operation to their larger office space, merging two firms with a combined 90 years of history.

Both transitions followed a similar pattern, with previous owners staying on for approximately three years. The first owner planned to work through the 2020 tax season, but when COVID extended deadlines indefinitely, he decided to leave on June 30th. “If we don’t just rip the Band-Aid off, I’m going to be here forever,” he told Abbott.

The second owner maintained his full role for the first year, with Abbott sitting in on client meetings but not directly involved in work. Years two and three saw gradual transitions until Abbott hired a replacement CPA. This extended handoff was crucial for client retention.

Building Trust Through Continuity

Abbott presented the second acquisition as a “merger” rather than a takeover, maintaining all existing staff to ensure continuity. The messaging mattered. “There was actually a pretty big sense of relief that we had a continuity plan in place,” Abbott notes. Clients who had watched their CPA age into his seventies welcomed the security of younger leadership backed by familiar faces.

The human element proved crucial. When a bookkeeper has been working with a client for 22 years and stays through the transition, “there’s a lot of comfort there,” Abbott observed. This continuity helped maintain exceptionally high client retention rates through both acquisitions.

Not all relationships transferred smoothly, though. Referral sources—particularly those with personal connections to previous owners—were harder to retain than clients. “The owner’s friend, people he grew up with, high school buddies, fraternity friends, some of those don’t transfer very well, no matter how hard you try,” Abbott acknowledged.

Marcus Dillon confirmed this challenge from his own experience. “The referral sources who referred clients to the firm while it was owned by another CPA, some of those loyalties go away.” This means firms must activate new business development strategies to replace lost lead sources.

Discovering Hidden Challenges and Strengths

Post-acquisition discoveries revealed problems and unexpected assets. Abbott uncovered situations like clients receiving May financials in September because “they’re always late and we have to call three times.” Marcus Dillon shared similar experiences, noting how sellers suddenly reveal after closing which clients are “awful to work with.”

But Abbott also discovered the firm’s employees had an exceptional ability to explain complex concepts without condescension. “We’ve received several referrals from prospects who said, ‘so and so told me to call you, I need help. And they said you wouldn’t make me feel dumb.’” This skill became a cornerstone of the firm’s value proposition.

The firm’s recent website redesign reflects this evolution. Rather than hiding behind traditional industry opacity, Abbott chose radical transparency with published pricing. “We’re not out here to compete with anybody on price, but you have no reason to hide it.” The new site at mjvcpa.com has already generated upsells from existing clients who discovered services they didn’t know the firm offered.

The Power of Peer Connections

Throughout these transitions, Abbott credits peer relationships as essential to survival. “COVID was brutal for everybody,” he reflects. “I don’t know that I would still be here running a firm without just some of those relationships that got me through the tough times.”

His involvement in mastermind groups and communities like Collective by DBA provided crucial support. “Having the resources of other firm owners that have literally walked in your shoes and faced the same challenges, getting their perspective, wisdom, and advice has always been hugely beneficial to me.”

These connections even facilitated acquisitions within the group. Marcus Dillon recalled how a conversation with one mastermind member led to another acquisition for his firm. The lesson? Professional relationships often yield unexpected opportunities.

Building for the Next 50 Years

Today, M.J. Vandenbroucke employs 13 team members in a hybrid environment, with staff in the office one to four days per week and two fully remote employees. 

After years of integration work, they’ve finally standardized processes across both acquired firms. Goals have shifted from survival to optimization. The firm has the capacity to grow without adding headcount.

“When you take the right steps, generally the results follow,” Abbott reflects. His patient approach to building on established foundations while creating new value positions M.J. Vandenbroucke for another 50 years of service.

For accounting professionals considering acquisitions, Abbott’s experience offers valuable lessons. Respect the pace of change. Invest in extended transitions that transfer trust, not just client files. Honestly evaluate what deserves preservation versus transformation. And perhaps most importantly, remember that “no is a complete sentence,” because boundaries matter when managing complex transitions.

Listen to the full episode to discover Abbott’s specific strategies for managing resistant staff, navigating unexpected challenges, and building the critical peer relationships that make these transformations possible. With patience, respect, and strategic thinking, you can honor the past while building for the future.

Rachel and Marcus Dillon, CPA, own a Texas-based, remote client accounting and advisory services firm, Dillon Business Advisors, with a team of 20 professionals. Their latest organization, Collective by DBA, supports and guides accounting firm owners and leaders with firm resources, education, and operational strategy through community, groups, and one-on-one advisory.

When Life Happens During the Wrong Tax Years—A $500,000 Lesson in Timing

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Steven and Catherine Webert’s story began like countless American dreams: newlyweds purchasing their first home in 2005, ready to build their life together. Within months, their dream became a nightmare when Catherine received a cancer diagnosis. The couple took out a line of credit against their home to pay mounting medical bills, determined to fight both the disease and the financial strain.

Then 2008 arrived with the Great Recession, making their home impossible to sell when they desperately needed funds. Forced to convert their residence to rental property from 2010 to 2015, they watched helplessly as a decade of homeownership ultimately cost them their entire $500,000 capital gains exclusion—not through poor planning or tax avoidance schemes, but through a series of life events that collided with Section 121’s unforgiving technical requirements.

In a recent episode of the Tax in Action podcast, host Jeremy Wells, EA, CPA, explained a troubling reality about one of the tax code’s most valuable benefits. The Webert v. Commissioner case (Tax Court Memorandum 2022-32) shows how easily clients can lose hundreds of thousands of dollars in tax benefits when life circumstances like health crises, economic downturns, or rental conversions collide with the rigid five-year lookback period and three-part qualification test.

For tax professionals serving clients in a housing market where median home prices hover around $400,000 and three to four million existing homes are sold nationwide each month, understanding these nuances is essential to client protection.

The Deceptively Simple Three-Part Test That Controls Massive Tax Savings

The $250,000 capital gains exclusion from Section 121 seems like a generous gift from Congress until you examine the fine print. What appears to be straightforward tax relief is really a complex web of interconnected requirements that operate within an inflexible timeframe. Missing any single element can cost clients hundreds of thousands of dollars.

Success hinges on passing three distinct but related tests:

  1. The ownership test requires taxpayers own their principal residence for at least two of the five years immediately preceding the sale.
  2. The use test requires they actually live in that property as their primary residence for two of those same five years—specifically, an aggregate of 24 months or 730 days within that five-year window.
  3. The once-every-two-years rule prohibits taxpayers from claiming the exclusion if they’ve used it on another property sale within the previous 24 months.

Understanding how this time counts is crucial for practitioners. As Wells explains, the law provides flexibility in measuring these periods. “We can either measure that in terms of 24 months, or we can measure that in terms of 730 days.” This approach can make the difference in borderline cases because “short periods of absence, such as vacations or even seasonal absences, still count as periods of use of that primary residence.”

For married couples filing jointly, the rules are more nuanced but potentially more generous. While both spouses must satisfy the use test—each living in the property as their principal residence for two of the preceding five years—only one spouse needs to meet the ownership requirement. This recognition of real-world marriage dynamics, where one spouse’s name often appears on the deed while both live in the home, doubles the maximum exclusion to $500,000 for qualifying joint filers.

Proactive planning is crucial, as Wells demonstrates with an example of a retiring client. The client owned both a primary residence near their workplace and a vacation home where they planned to spend retirement. Their natural instinct was to sell the primary residence immediately upon retirement, then move into the vacation home. But when that one-bedroom third-floor condo proved unsuitable for their mobility needs, they wanted to sell it quickly.

“Luckily, they told me about their plans before they got too far into it,” Wells explains, “so I could explain to them that they would probably have an issue with the once-every-two-years rule.” The couple ultimately decided to delay their plans, holding the vacation property until they could claim the exclusion. The decision saved them a significant tax liability on substantial capital gains.

However, failing any one of the three tests destroys the entire benefit.

How Real-World Circumstances Destroy Tax Benefits

The Webert case illustrates how health crises and economic downturns can obliterate even the most well-intentioned tax planning. Catherine and Steven Webert seemed to do everything right. They owned their home for a full decade and used it as their principal residence for four years. Yet when they filed their 2015 tax return claiming the $500,000 exclusion, the IRS issued a notice of deficiency that ultimately cost them hundreds of thousands of dollars.

The couple’s problems began with circumstances beyond their control. Catherine’s cancer diagnosis forced them to tap their home’s equity for medical expenses. The 2008 housing market collapse made selling impossible when they desperately needed cash. Converting their residence to a rental property from 2010 to 2015 seemed like the only viable option, but the couple unknowingly triggered Section 121’s most unforgiving provision.

Wells explains the arithmetic: “We have to look back five years from when they sold it. So that takes us to 2010. That entire five-year period, it was a rental. They never used it as their principal residence during that five-year window.” The law’s rigid five-year lookback period means that regardless of how long they owned the property or how legitimate their reasons for renting it, the final five years before the sale determined their eligibility.

This introduces the concept of “non-qualified use”—periods when the property wasn’t used as the taxpayer’s principal residence. However, the definition contains a crucial distinction: non-qualified use “does not include any portion of the five-year period after the last date, the taxpayer or spouse used the property as the principal residence.”

This timing distinction proves critical. As Wells explains, “If the property was a principal residence and then converted to a rental and then sold, and the taxpayer never moved back into it as a principal residence, then that period of rental is not non-qualified use.” The Weberts fell into this exact scenario. They converted to rental and never returned to personal use before selling.

Had they moved back into their home for two years before selling, converting it from rental back to personal residence, they might have qualified for the exclusion. But life doesn’t always accommodate tax planning timelines. Their health situation and subsequent living arrangements made returning to the property impossible, and the result was an unexpected tax liability.

As this case demonstrates, while Section 121 provides generous benefits for qualifying taxpayers, it offers no relief for those whose life circumstances don’t align with its technical requirements. Health crises, economic downturns, and forced rental conversions often trigger the conditions that eliminate taxpayers’ eligibility for that relief.

Why Partial Exclusions Rarely Save the Day

When tax professionals first encounter the partial exclusion provisions in Section 121, they often see them as the safety net clients need when life disrupts their tax planning. The reality is far more limited and frustrating than the language suggests.

The law establishes three safe harbors:

  1. The distance safe harbor for employment changes applies when taxpayers move at least 50 miles farther from their former residence. Importantly, “self-employment also counts as employment.”
  2. The physician’s recommendation safe harbor covers moves recommended by a doctor “to obtain, provide or facilitate the diagnosis, cure, mitigation or treatment of disease, illness or injury.”
  3. The specific event safe harbor addresses unforeseen circumstances including “involuntary conversion,” “natural disaster,” “acts of war or terrorism,” “death,” job loss “that results in an inability to pay housing or living costs,” “divorce or legal separation,” and even “multiple births from the same pregnancy.”

These exceptions allow qualifying taxpayers to claim a partial exclusion calculated by multiplying their maximum exclusion amount by the ratio of their qualifying period. A taxpayer who qualifies for only 18 months could claim 75% of their maximum exclusion—potentially $375,000 for a married couple filing jointly.

But these partial exclusions only address violations of the ownership test, use test, or once-every-two-years rule. They don’t extend the five-year lookback period that proved fatal to the Weberts’ case. As Wells explains, “There is no exception to that five-year time period. Even if you qualify under one of these other exceptions, that’s only for the ownership use or once every two-year rule.”

The health exception can be particularly misleading for practitioners and clients facing medical crises. While Catherine Webert’s cancer diagnosis seems exactly like the type of health issue the exception was designed to address, the law has strict requirements. Wells notes that “a sale that’s merely beneficial to the general health or well-being of an individual does not qualify.” This distinction is important when “older taxpayers want to move to a warmer, drier climate such as the southwest, just because they might expect to have a little bit easier time. that change in climate will not qualify for the partial exclusion.”

The specific events safe harbor creates equally frustrating limitations. While multiple births qualify as an unforeseen circumstance, “just moving because you think you can get a better, higher paying job, or you think the cost of living will be less moving somewhere else doesn’t qualify. And just deciding you don’t like where you live and want to live somewhere different, that also doesn’t qualify.”

Steven Webert attempted to argue before the Tax Court that his wife’s health crisis should qualify them for partial relief. But the court disagreed. The partial exclusions apply “only if you fail to meet the ownership use and once every two-year rule, it does not extend the five-year period. The only way you get an extension there is to work in the armed forces, foreign service, or intelligence community.”

The very circumstances that most desperately require tax relief often create exactly the conditions that eliminate eligibility for that relief. The Weberts received no exclusion—partial or otherwise—from the sale of their principal residence despite compelling reasons for every choice they made.

The case underscores why proactive planning is essential, making the difference between preserving hundreds of thousands of dollars in tax benefits and watching them disappear into the government’s coffers.

Protecting Your Clients from the Section 121 Minefield

Section 121’s technical requirements apply regardless of human circumstances. Understanding these nuances is essential for client protection, particularly when dealing with the complex scenarios that increasingly define modern family finances.

Wells emphasizes the importance of timing conversations with clients before they make irreversible decisions. His retirement planning example illustrates this perfectly. Catching the client’s plans early enough to restructure their approach saved them from losing substantial tax benefits. 

Determining which property qualifies as the principal residence requires analyzing multiple factors when clients own multiple homes. Wells explains that Treas. Reg. § 1.121-2(b)(2) provides guidance including “the taxpayer’s place of employment,” “where immediate family members live,” “mailing addresses for bills and correspondence,” “where is the taxpayer’s religious organizations, recreational clubs, social events,” and “what’s the address that the taxpayer uses on federal and state documents such as tax returns, driver’s licenses, automobile registrations, voter registrations.”

The ownership rules create additional planning opportunities and traps. While married couples need only one spouse to satisfy the ownership test, both must meet the use requirement, and importantly, “the usage does not have to be concurrent.” As Wells explains, “it’s entirely possible that each spouse uses it for a different two-year period out of the last five years before the sale.”

For aging clients, special provisions offer some relief. Wells notes that “taxpayers who move into assisted living might qualify as well. So a taxpayer incapable of self-care that moves into a licensed facility, such as a nursing home, may still qualify for the exclusion if they owned and used that property as a principal residence for periods aggregating at least one year during the five-year period preceding the sale.”

The depreciation recapture rules surprises many clients. Wells explains: “The exclusion does not apply to depreciation recapture. If that property is converted to a rental and then sold, even if there is some period of use there as a principal residence, we cannot use that exclusion against the depreciation recapture.” For homes with business use, “the taxpayer has to allocate the gain to the residential and the nonresidential portions of the property.” They can only exclude  the gain from the residential portion.”

These provisions interact in ways that can catch even experienced practitioners off guard. Successful Section 121 planning requires understanding the rules and how they interact with clients’ broader financial and personal circumstances.

In a highly appreciated housing market, the difference between qualifying for the full exclusion and losing it entirely can determine whether clients retire comfortably or face unexpected six-figure tax bills. As Wells concludes: “It’s incredibly important that we fully understand all of the nuances of the rules when it comes to excluding the gain and sale of the home. In their life, this could be one of the most significant, if not the most significant, financial transactions that a taxpayer is involved in.”

Your Clients’ Financial Future Hangs in the Balance

The Webert case offers a sobering reminder that in tax law, good intentions and compelling circumstances can be powerless against rigid technical requirements. Catherine and Steven Webert’s decade of responsible homeownership, their legitimate health crisis, and their reasonable responses to economic hardship meant nothing when measured against Section 121’s five-year lookback period. 

Tax professionals aren’t just managing technical compliance. They’re protecting what is likely the clients’ largest financial asset and most significant transaction. Listen to the full Tax in Action podcast to learn more about Section 121’s nuances. Missing its critical timing requirements can literally determine whether your clients retire comfortably or face devastating six-figure tax bills.

When Auditors Become Robots: The Hidden Cost of Mechanical Box-Checking

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For four to five straight years, an audit team meticulously completed their control testing checklists, dutifully checking every box and signing off on every procedure. Their work papers looked pristine. Their compliance documentation was flawless. And all the while, an employee was systematically committing fraud right under their noses.

When questioned about the controls they’d supposedly tested year after year, these auditors couldn’t explain how a single one actually worked. They had fallen into what CPA Sam Mansour calls “the checklist trap”—a dangerous mindset where the very tools designed to ensure audit quality become the biggest threats to it.

This eye-opening example comes from a recent Audit Smarter podcast episode where host Sam Mansour digs into the mechanical box-checking that passes for diligent auditing in too many firms today. While audit checklists are useful tools for quality control, they become dangerous crutches when auditors stop thinking beyond the boxes they’re checking.

When Good Tools Become Dangerous Crutches

Checklists start life as helpful guides. They’re designed by experienced professionals who’ve seen common audit problems and want to prevent them. They’re meant to be guardrails, keeping auditors on track while still allowing room for professional judgment and client-specific thinking. But somewhere along the way, these helpful tools can become dangerous.

The transformation happens gradually. As Mansour explains, “If the checklists say to go look at an area, you go look at that area. If they’re silent on a specific area, then you just don’t even consider going in there. So basically, instead of it being a helpful guide, it becomes a literal crutch.”

What starts as a helpful framework eventually limits an auditor’s perspective to what’s written on forms. 

The checklist mentality is particularly dangerous because it feels so professional. Auditors complete every step, sign off on every procedure, and produce work papers that look thorough. The documentation appears complete and compliant. But underneath the surface, there’s no critical thinking.

Consider the real-world example from the podcast: auditors who marked controls as “tested” year after year, checking all the right boxes and completing all the required procedures. Their checklists were perfect. Their sign-offs were current. But when questioned about how these controls actually worked, they couldn’t provide a single coherent explanation.

“There were severe control issues at the client which allowed for fraud to occur,” Mansour explains. “And it just wasn’t discovered by the audit team. The person committed fraud for four or five years. And I think the auditors just kept coming in and checking that box.”

The consequences were predictable and severe. The fraud continued undetected, not because the checklists were inadequate, but because no one was thinking beyond them.

This creates blind spots where fraud and errors can flourish. As Mansour notes, “Checklists are designed kind of as a textbook solution. The checklists don’t necessarily catch everything..”

The Hidden Forces That Kill Critical Thinking

The checklist trap isn’t the result of lazy auditors or character flaws; it’s the predictable outcome of systemic problems that even dedicated professionals can’t overcome through willpower alone. When we look beneath the surface of mechanical box-checking, we discover forces that make thoughtful auditing nearly impossible.

The most damaging culprit is budget pressure created by systematic underbidding. As Mansour explains: “Some firms tend to price engagements very low. And so let’s say, for example, your budget is $5,000 for an engagement, when really it should be $15,000.”

The math is brutal. If your firm targets $150 per hour but you’re forced to complete work in one-third the appropriate time, you’re effectively working for $50 per hour while still being held to $150-per-hour quality standards. This creates an impossible situation where taking time to truly understand complex checklists is financially unsustainable.

The cultural reinforcement runs deep. In many firms, the message from leadership focuses on completion rather than understanding: “Make sure you fill out these checklists, make sure they’re done correctly, make sure every box is checked.” This message, coupled with crushing deadlines and impossible budgets, transforms checklists from investigative tools into speed tests.

“A lot of times, unfortunately, in public accounting, that kind of curiosity, that dialog is seen as a waste of time because it takes up billable hours,” Mansour observes. The system rewards speed over understanding and punishes the curiosity that leads to quality work.

The training gap makes things worse, particularly for new auditors who find themselves drowning in technical terms they never learned in school. Mansour recalls his own experience: “I actually remember sitting there, looking at my computer, looking at my screen, and thinking, oh my gosh, I had no freaking clue what I’m doing.”

When new auditors are handed complex checklists filled with unfamiliar concepts but given no time to learn, mechanical completion becomes their only survival strategy. The system even punishes the behaviors it claims to want. Mansour describes being criticized early in his career: “The criticism that I used to get is look at this person next to you, how quick they are.”

While his colleague was flying through checklists, Mansour was taking time to understand the work and feeling “so far behind” and “so dumb” as a result. The irony? Years later, Mansour had surpassed his speedy colleague in seniority, proving that thoroughness ultimately beats speed. But how many talented auditors give up or develop bad habits before they can prove this point?

This creates a cycle where underbidding forces rushed work, rushed work requires increased checklist dependency, and checklist dependency reduces the quality that justifies higher fees. Breaking free requires systematic change.

Breaking Free: The Strategic Approach to Better Auditing

The path out of the checklist trap isn’t about abandoning structure or telling auditors to simply “think more.” It requires systematic changes that address the root causes we’ve identified. Forward-thinking firms are implementing coordinated solutions that transform their economic models, training approaches, and cultural expectations.

The foundation starts with honest pricing. Firms must have the courage to move their fees to industry-standard levels, even if it means difficult conversations with clients. As Mansour explains, when firms properly price their engagements and explain the increases, the client, a lot of times, will stay. Because if they ask around, they’ll find those fees are industry standard, and what they were getting with you was really an unreasonable deal.

Adequate pricing creates the breathing room necessary for thoughtful analysis rather than mechanical box-checking. With realistic budgets in place, firms can modernize their training by focusing on the “why” behind procedures rather than just the “what.”

Effective training requires creating psychological safety for new auditors to admit knowledge gaps. Mansour offers this advice to entry-level staff: “Look, if you don’t know it, you’re better asking the questions now. Because if I hear you asking in 12 months or 24 months those questions you should have asked in the first two, three, four months, I’m going to be very concerned.”

The shift requires moving beyond speed-focused metrics to value-based evaluation. Instead of comparing new auditors to experienced colleagues on time alone, managers should emphasize quality development first. As Mansour learned through experience, “You’re better off going slow and then picking up the speed later. Whereas if you start out with the speed to impress people, it’s difficult, I found, to pick up the quality.”

Practical implementation involves several concrete tools. Firms should customize audit programs for each engagement rather than using generic templates. Modern audit software can generate tailored checklists based on client-specific risk assessments. Adding professional judgment prompts throughout checklists helps auditors think beyond simple completion.

Mansour suggests incorporating “memory joggers,” brief explanations of how conclusions were reached. For example, when testing missing check numbers in a sequence, document not just what was done, but why. “We decided to test missing check numbers because we noticed irregularities in the sequence that could indicate control weaknesses or potential fraud.”

Successful firms also restructure their wrap-up meetings to discuss what was done and why it mattered. “We could say that we audited a specific area. But why did we choose to audit that area, especially if it’s not something we typically do?” Mansour asks.

The red flags that indicate continued checklist dependency are easy to spot. Work papers that remain essentially identical year over year signal mechanical copying rather than thoughtful analysis. Missing documentation of key discussions suggests auditors are focused on completion rather than understanding. Outdated information, like wrong contact names scattered throughout documents, reveals the copy-paste mentality that characterizes checklist traps.

Teams that successfully break free demonstrate clear evolution in their work. Their audit programs adapt as clients change and grow. They identify new risks and modify procedures accordingly. Most importantly, they can articulate the reasoning behind their decisions.

As Mansour’s technical reviewer wisely noted: “When the peer reviewers come in, they have a checklist, and their checklist is checking in on your checklist.” Understanding that audits exist within layers of professional oversight reinforces why thoughtful checklist use serves everyone’s interests better.

The Choice Between Clerks and Professionals

When auditors become mechanical box-checkers rather than analytical investigators, the tools that promise consistency and quality destroy the very thinking that makes work professional in the first place.  Clients deserve better.

This isn’t about individual auditors lacking motivation or intelligence. It’s about good professionals working within systems that punish the curiosity and analytical rigor their profession demands. When firms underbid engagements, create crushing time pressures, and reward speed over understanding, they train their staff to stop thinking.

On the other hand, firms that properly price their services, invest in real training, and create cultures that reward analytical thinking avoid the checklist trap and position themselves as the strategic partners their clients need.

The goal is to use checklists as launching points for professional judgment rather than substitutes for it. The firms that learn to balance structure with thinking will build stronger relationships, deliver higher value, and attract the talent that drives long-term success.

The complete roadmap for avoiding checklist dependency is available in the full Audit Smarter podcast episode, where Mansour provides detailed implementation strategies, specific examples of cultural transformation, and the exact frameworks successful firms use to turn checklist-dependent teams into strategic thinking powerhouses.

Because in the end, the choice is simple: Continue training clerks who check boxes, or develop professionals who think, analyze, and protect the interests they’re hired to serve.

Why This Firm Owner Woke Up Unable to Move After Planning Her Path to $3 Million

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Picture being six months pregnant, climbing a ladder—not stairs, a ladder—in slingback heels to reach your desk in a famous New York fashion stylist’s loft. For most people, this would be a wake-up call about workplace safety. For Justine Lackey, it became the spark that pioneered virtual bookkeeping in the early 1990s, using FedEx, zip drives, and messengers to revolutionize an entire industry before online banking even existed.

In this episode of She Counts, hosts Nancy McClelland and Questian Telka welcome Lackey, a true trailblazer who built and sold a successful bookkeeping firm while challenging every assumption about what business success should look like. As McClelland shares in her introduction, Lackey is “a devoted mother to three and mentor and coach in her incubator program for bookkeepers and accountants growing their firms.”

When Your Body Knows What Your Mind Won’t Admit

“I’m an accidental entrepreneur,” Lackey explains early in the conversation. She landed in bookkeeping through a roommate’s invitation and never planned to build what she calls “the H&R Block of bookkeeping firms.” Without a college degree (she didn’t finish until 2009, well after she established her firm, Good Cents Management) or corporate experience, she lacked the traditional frameworks most firm owners bring to their businesses.

This lack of traditional structure had consequences. “Everybody says, ‘I wanna be successful,’ but that’s ambiguous,” Lackey says. “You have to get into the details of it. I wanna make $250,000 a year, or $500,000 a year. I wanna work 20 hours. I wanna have a team of five.” Without this clarity, she found herself swept along by what she identifies as cultural pressure to constantly expand.

The breaking point came during an Entrepreneurial Operating System (EOS) planning session with her team. Together, they mapped out a roadmap to $3 million in revenue. The math was clear: seven to nine bookkeeping teams with redundancy meant 14 to 18 bookkeepers. Add client service managers and a true integrator or COO, and they’d need approximately 28 employees.

“The energy in the room was like, yeah, woo!” Lackey recalls. “Like when you’re at conference world and you’re walking on hot coals.” Everyone left excited, including Lackey—until the next morning.

“I woke up and I literally could not move my right shoulder,” she shares. The pain was so severe her massage therapist couldn’t even work through the tension. “What is this weight on your shoulders?” the therapist asked. As Lackey recounted the previous day’s planning, the connection became clear. This wasn’t an injury; it was her body rejecting a path that violated her values.

The Hard Conversation Nobody Wants to Have

Recognizing she didn’t want to build a 28-person company meant facing her excited team with a complete reversal. “That’s ethical leadership in action,” Lackey explains. “That’s hard conversations.”

Lackey returned to her team with honesty, “It was really exciting and I believe this can be done. But at the end of the day, this is my life. I don’t wanna do that.”

“It’s terrifying to put your tail between your legs,” she admits. But as Telka points out, “Admitting that you have taken a wrong turn builds a lot of respect.”

This moment revealed a deeper truth about integrity. “We often talk about integrity in relation to other people,” Lackey notes, “but we don’t talk about integrity in relation to ourselves. When we’re out of alignment with integrity, that causes inner conflict and stress.”

Why Growing Sideways Beats Growing Up

The conversation then turns to a concept that challenges everything the industry teaches about success: lateral growth versus vertical growth.

“Whenever people on LinkedIn talk about having a successful firm, they always talk about revenue,” McClelland observes. “They almost never, ever, ever talk about profit or net income margins.”

Telka adds her favorite quote, “Revenue is vanity, profit is sanity.”

Lackey explains the difference. “Vertical growth is the most common type of growth people discuss—raising your revenue number and client acquisition. Those are really sexy numbers.” But lateral growth—the systems, processes, technology, and team development—”requires patience. It is very detailed, hard work.”

The challenge is that small firms can’t do both simultaneously. “There are very few people, particularly in smaller firms, who can do this all at once,” Lackey emphasizes. “So you need to make a choice.”

Her choice involved intentional constraints that seemed counterintuitive. She worked exclusively with QuickBooks Online, turning away Xero users even when they begged. She refused wholesale clients with inventory because she “hated counting bits and bobs and COGS.” These weren’t limitations; they were strategic decisions to build deep expertise.

Even technology decisions followed this principle. When Good Cents invested months implementing a new practice management system that the team hated, they made a shocking choice: abandon it entirely and return to Google Sheets. “Sometimes lo-fi is hi-fi,” Lackey explains. “Technology platforms are like people, and not all people are your people.”

The Blindfold Moment That Changed Everything

Perhaps the most powerful part of the conversation comes when Lackey shares how she discovered her business was actually a sellable asset. “When you live in a scarcity-based poverty mentality,” she explains, “it is hard for you to see a different reality for yourself.”

During one particularly frustrating period, she vented to a designer friend, “I’m so frustrated. I just wanna quit.”

“But you could just sell it,” the designer replied casually.

“Sell what?” Lackey asked, genuinely confused.

“It’s like I was blindfolded and somebody snatched the blindfold off,” she recalls. The designer pointed out the obvious: recurring revenue, strong operations, great clients. “You’re a great business. You could sell it.”

This revelation sent Lackey on a research journey. She devoured “Built to Sell” by John Warrillow in a single day and discovered firms were selling for about one times annual revenue. Her firm was worth more than her 960-square-foot cottage.

“I couldn’t even see what was possible for myself,” she admits.

When she eventually sold Good Cents in 2023, 28 potential buyers courted her. The relationships she’d built—including one client who’d been with her 22 years and had hosted her baby shower— created incredible value. “Relationships are assets,” Lackey emphasizes, “even if we can’t line item them on a balance sheet.”

The Secret Every Firm Owner Needs to Hear

Near the end of the conversation, Lackey shares what she calls “a secret that nobody talks about.” Every firm owner wants help.

This insight applies whether you run your own firm or work in someone else’s. “When you can come into a conversation and say, ‘I really like working here and I really like the work I’m doing, but these are the recurring problems and this is the solution I propose’—that takes courage,” she explains.

McClelland adds her own experience, “My best mentor ever taught me that important lesson. She said, ‘Come to me with solutions, not problems.’”

Your Next Step Toward Intentional Growth

Lackey now channels these lessons through her Modern Firm Challenge, a free five-day program running one hour per day. “My personal mission statement is that I help the world by helping people,” she shares. The challenge focuses on the biggest pain points: onboarding, monthly close, pricing, and increasingly, technology and AI.

“You’re not gonna fix all the things,” she tells participants. “You’re gonna look at the lessons and say, this is what I’m gonna focus on right now.”

McClelland predicts some firm owners might initially resist. “You’re telling me I need to slow down to speed up? I don’t have five days to take off to do this.”

But Lackey’s response is practical: “The classes are only an hour a day. We run them from one to two.” Plus, they record everything for those who can’t attend live.

The results speak for themselves. As Lackey notes, “I’m not here to tell you you can build a million dollar firm overnight. I’m here to tell you you can do whatever you wanna do, but it’s going to take time.”

Permission to Choose Your Own Path

The conversation closes with McClelland sharing a powerful quote from author Laurie Perez: “I reserve the right to evolve. What I think and feel today is subject to revision tomorrow.”

This perfectly captures what Lackey has given listeners: permission to have clarity about what they want and to change their minds when their goals no longer serve them.

Ready to build the business you actually want? Sign up to get on the VIP list for Lackey’s next Modern Firm Challenge at justinelackey.com/register. You can also find her on LinkedIn or join her free Facebook group, The Incubator, with about 4,000 members building community together.

As this episode of She Counts proves, building with intention rather than endless expansion might just be the key to creating the valuable, sustainable business you’ve always dreamed of, even if you didn’t know it was possible.