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Today, I offer you a list of forty audit and work paper mistakes.
The list is based on my observations from over over thirty years of audit reviews (and not on any type of formal study).
You will, however, shake your head in agreement as you read these. I know you’ve seen them as well. The list is not comprehensive. So, you can add others in the comments section of this post.
Here’s the list.
- No preparer sign-off on a work paper
- No evidence of work paper reviews
- Placing documents in the file with no purpose (the work paper provides no evidential matter for the audit)
- Signing off on unperformed audit program steps
- No references to supporting documentation in the audit program
- Using canned audit programs that aren’t based on risk assessments for the particular entity
- Not documenting expectations for planning analytics
- Inadequate explanations for variances in planning analytics (“revenue went up because sales increased”)
- Planning analytics with obvious risk of material misstatement indicators, but no change in the audit plan to address the risk (sometimes referred to as linking)
- Not documenting who inquiries were made of
- Not documenting when inquiries were made
- Significant deficiencies or material weaknesses that are not communicated in written form
- Verbally communicating control deficiencies (those not significant deficiencies or material weaknesses) without documenting the conversation
- Performing needed substantive tests with no related audit program steps (i.e., the audit program was not amended to include the necessary procedures)
- Assessing control risk below high without testing controls
- Assessing the risk of material misstatement at low without a basis (reason) for doing so
- Documenting significant risks (e.g., allowance for uncollectible receivable estimates in healthcare entities) but no high inherent risks (when inherent risk are separately documented)
- Not documenting the predecessor auditor communication in a first-year engagement
- Not documenting the qualifications and objectivity of a specialist
- Not documenting all nonattest services provided
- Not documenting independence
- Not documenting the continuance decision before an audit is started
- Performing walkthroughs at the end of an engagement rather than the beginning
- Not performing walkthroughs or any other risk assessment procedures
- Not performing risk assessment procedures for all significant transaction areas (e.g., risk assessment procedures performed for billing and collections but not for payroll which was significant)
- Not retaining the support for opinion wording in the file (especially for modifications)
- Specific items tested are not identified (e.g., “tested 25 disbursements, comparing amounts in the check register to cleared checks” — we don’t know which particular payments were tested)
- Making general statements that can’t be re-performed based on the information provided (e.g., “inquired of three employees about potential fraud” — we don’t know who was interviewed or what was asked or their responses)
- Retrospective reviews of estimates are not performed (as a risk assessment procedure)
- Going concern indicators are present but no documentation regarding substantial doubt
- IT controls are not documented
- The representation letter is dated prior to final file reviews by the engagement partner or a quality control partner
- Consultations with external or internal experts are not documented
- No purpose or conclusion statement on key work papers
- Tickmarks are not defined (at all)
- Inadequately defining tickmarks (e.g., ## Tested) — we don’t know what was done
- No group audit documentation though a subsidiary is included in the consolidated financial statements
- No elements of unpredictability were performed
- Not inquiring of those charged with governance about fraud
- Not locking the file down after 60 days
That’s my list. What would you add?
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About the Author
Charles Hall is a practicing CPA and Certified Fraud Examiner. For the last thirty years, he has primarily audited governments, nonprofits, and small businesses. He is the author of The Little Book of Local Government Fraud Prevention and Preparation of Financial Statements & Compilation Engagements. He frequently speaks at continuing education events. Charles is the quality control partner for McNair, McLemore, Middlebrooks & Co. where he provides daily audit and accounting assistance to over 65 CPAs. In addition, he consults with other CPA firms, assisting them with auditing and accounting issues.
