Unnecessary audit work papers create clutter and can create legal problems.
I see two problems in most audit work paper files:
(1) Too much documentation, and
(2) Not enough documentation
I recently wrote a post tilted: Audit Documentation: If It’s Not Documented, It’s Not Done. Since I have already covered the “not enough documentation” issue, today we’ll look at the other problem, too much documentation.
Over the last thirty years, I have reviewed audit files for CPA firms and have commonly asked this question: Why is this work paper in the file?
Here are a few standard answers.
1. It was there last year.
But is it relevant this year? Resist the temptation just to copy or bring forward work papers from the prior year. Performing a proper audit entails risk assessment (e.g., walkthroughs, analytics), planning (i.e., creating an audit plan), and execution (i.e., carrying out the audit plan). Likewise, compilations and reviews should reflect current year planning and performance.
2. The client gave it to me.
For some reason, young auditors tend to put everything given to them in the file. I think they believe, “if the client gave it to me, it must be important.”
There is one reason to place documentation is the file: It provides audit evidence to support the opinion.
3. I may need it next year.
Then save it—somewhere other than the audit file—for next year. If the information does not provide current year engagement evidence, then it does not belong in the current year file.
Consider setting up a file for next year and placing next year’s information in that file. Or create a folder in the current year file titled: next year’s work papers; then move this section from the current year file as you wrap up the engagement.
4. I might need it this year.
Before going paperless (back in the days of moving work papers with a hand truck), I kept a manila folder titled: File 13. The physical folder was my hang-on-to-it-in-case-I-need-it repository.
Since my files are now paperless, I create an electronic folder titled “Recycle Bin” that sits at the bottom of my file. If I receive information that is not relevant to the current year work, I move it to the recycle bin, and while I am wrapping up the engagement, I dispose of the entire folder.
5. It’s an earlier version of an existing work paper.
Move earlier versions of work papers (e.g., initial financial statements) to your recycle bin.
6. I need it for my tax work.
Then it belongs in the tax file (unless it’s related to your attestation work – e.g., deferred taxes).
7. We missed a fraud ten years ago, so we always include these work papers.
Fraud procedures (and all procedures for that matter) should reflect the current year audit risk assessment and planning.
The most important reason for minimizing work paper content is to reduce your legal exposure. Excess work papers may provide an attorney ammunition. “Mr. Hall, here’s a work paper from your own audit file that reveals fraud was occurring, and you didn’t see it?” (So don’t, for example, leave the full general ledger in your work papers.)
What are your thoughts about removing unnecessary audit work papers?
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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.
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