In this post, I provide ten steps to better audit workpapers.
Have you ever been insulted by a work paper review note?
Your tickmarks look like something my six-year old created.
Rather than providing guidance, the comment feels like an assault.
Or maybe as a reviewer you stare at a workpaper and you’re thinking, “what the heck is this?” Your stomach tightens and you say out loud, “I can’t understand this.”
There are ways to create greater audit workpaper clarity.
Here are ten steps to make your workpapers sparkle.
a. An unclear work paper is like a stone wall. It blocks communication.
b. State the purpose; for example:
Purpose of Work Paper – To search for unrecorded liabilities as of December 31, 2018. Payments greater than $30,000 made from January 1, 2019, through March 5, 2019, were examined for potential inclusion in accounts payable.
Purpose of Work Paper – To provide a detail of accounts receivable that agrees with the trial balance; all amounts greater than $20,000 agreed to subsequent receipt.
If the person creating the work paper can’t state the purpose, then maybe there is none. It’s possible that the staff person is trying to copy prior year work that (also) had no purpose.
c. All work papers should satisfy a part of the audit program (plan). No corresponding audit program step? Then the audit program should be updated to include the step—or maybe the work paper isn’t needed at all.
3. The preparer should sign off on each workpaper (so it’s clear who created it).
4. Audit program steps should be signed off as the work is performed (not at the end of the audit–just before review). The audit program should drive the audit process—not the prior year workpapers.
5. Define tickmarks.
6. Reference work papers. (If you are paperless, use electronic links.)
7. Communicate the reason for each journal entry.
The following explanation would not be appropriate:
To adjust to actual.
A better explanation:
To reverse client-prepared journal entry 63 that was made to accrue the September 10, 2018, Carter Hardware invoice for $10,233.
8. When in doubt, leave it out.
Far too many documents are placed in the audit file simply because the client provided them. Moreover, once the work paper makes its way into the file, auditors get “remove-a-phobia“–that dreaded sense that if the auditor removes the work paper, he may need it later.
If you place those unneeded documents in your audit file and do nothing with them, they may create potential legal issues. I can hear the attorney saying, “Mr. Hall, here is an invoice from your audit file that reflects fraud.”
Again, does the work paper have a purpose?
My suggestion for those in limbo: Place them in a “file 13” stack until you are completely done. Then–once done–destroy them. I place these documents in a recycle bin at the bottom of my file.
9. Complete forms. Blanks should not appear in completed forms (use N/A where necessary).
10. Always be respectful in providing feedback to staff. It’s too easy to get frustrated and say or write things we shouldn’t. For instance, your audit team is more receptive to:
Consider providing additional detail for your tickmark: For instance–Agreed invoice to cleared check payee and dollar amount.
This goes over better than:
You failed to define your tickmark–again?
What other ways do you make your audit workpapers sparkle? Comment below.
The AICPA provides a sample workpaper template that you may find helpful.
You may also be interested in a related post: How to Review Financial Statements.
Also, see Audit Documentation: Peer Review Finding.
Charles Hall is a practicing CPA and Certified Fraud Examiner. For the last thirty-five years, he has primarily audited governments, nonprofits, and small businesses. He is the author of The Little Book of Local Government Fraud Prevention, The Why and How of Auditing, Audit Risk Assessment Made Easy, and Preparation of Financial Statements & Compilation Engagements. He frequently speaks at continuing education events. Charles consults with other CPA firms, assisting them with auditing and accounting issues.