Ever been insulted by an audit review note?
Your tickmarks look like something my third-grader created.
Rather than providing guidance, the comment felt like an assault.
Or maybe you are the reviewer–you stare at a work paper for several minutes– and you’re thinking, “what the heck is this?” Your stomach tightens as you continue, “I really don’t have time for this right now.”
Here are ten steps to make your work papers sparkle.
- Timely review work papers. The longer the in-charge waits to review notes, the harder it is for the staff person to explain what they did and, if needed, make corrections. Also consider that the staff person may be reassigned to another job; consequently, he may not be available to clear the review notes.
- Communicate the work paper’s purpose.
a. An unclear work paper is like a stone wall; it blocks communication.
b. State the purpose of the work paper; for example:
Purpose of Work Paper – To search for unrecorded liabilities as of December 31, 2014; payments (greater than $30,000) made from January 1, 2015 through March 5, 2015 examined (by review of invoice) for potential inclusion in accounts payable detail as of the year-end.
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 none exists. It’s possible that the staff person is trying to copy a work paper from the prior year that (also) had no purpose.
Click Purpose Notation Explanation for brief audio comment.
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 the work isn’t needed.
3. Each work paper should have the originator’s sign-off (so we can know 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 work papers.
5. Clearly define tickmarks.
6. Reference work papers. (If you are paperless, use electronic links.)
7. Clearly 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, 2015 Carter Hardware invoice for $10,233.
8. When in doubt, leave it out.
Far too many work papers are placed in a work paper file simply because the client gave the document to the auditor. 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, she may later need it.
If you just place those documents in your audit file and do nothing with them, they may create potential legal issues for your firm–I can hear the attorney say, “Mr. Hall, here is an invoice from your audit file that clearly reflects fraud was occurring.”
Again, does the work paper have a purpose?
My suggestion for those in-limbo work papers: Place them in a “file 13” stack until you are completely done; then destroy them (and I mean completely). My firm is paperless, so I place these work papers in a recycle bin at the bottom of my work paper tree. Before going paperless, I would place them in a large manila envelop marked “file 13”.
9. Forms should be filled out; blanks should not appear in completed work papers (use N/A where necessary).
10. Most importantly: 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 in your tickmark definition: For instance–Agreed invoice to cleared check payee and dollar amount.
This goes over better than:
You failed to define your tickmark–again?
What about your review process? Are there other points you would add to the list?
You may also be interested in a related post: 7 Steps to Effectively Review Financial Statements.
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