Unnecessary audit work papers create clutter and potential legal problems.
I see two problems in most work paper files:
(1) Too much documentation, and
(2) Too little documentation
I have written an article titled: Audit Documentation: If It’s Not Documented, It’s Not Done. Since I’ve already addressed the too little documentation issue, I’ll now speak to the other problem: too much documentation.
Over the last thirty-five 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 seven answers I’ve received.
But is it relevant this year? Resist the temptation to mindlessly 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.
Inexperienced auditors tend to put everything given to them in the file. Some auditors believe “if the client gave it to me, it must be important.” But this is not necessarily true. Every work paper needs a purpose.
Then save it for next year—somewhere other than in the current file. If the information does not provide current year engagement evidence, then it does not belong in the file.
Consider creating 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 to next year’s file as you close the engagement.
Before going paperless (back in the prehistoric days when we moved work papers with hand trucks [icon name=”smile-o” class=”” unprefixed_class=””]), 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 (but there is a chance I will need it), I move it to the recycle bin, and when I am wrapping up the engagement, I dispose of the folder.
Move earlier versions of work papers to your recycle bin—or delete them.
Then it belongs in the tax file (unless it’s related to your attest work – e.g., deferred taxes).
But why is it being done this year? Maybe a fraud was missed ten years ago and the partner said, from now on we will…
Are these procedures still relevant?
The test of details, substantive analytics, and test of controls should be in response to 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 ammunition to an opposing attorney: “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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