In reviewing audit files, I’m often surprised by the things I see. Do your audit files contain worthless work papers?
For instance, why would anyone retain review notes? Review notes are helpful in correcting deficiencies, but once corrections are made, the comments should be removed.
Another example? Copies of bank statements. If bank balances are confirmed, what is the purpose of retaining bank statements? The auditor may need bank reconciliations, but bank statements?
Or how about general ledgers? They are handy during the audit, but if a fraud is detected subsequent to audit issuance, we have created unnecessary legal exposure. Somewhere, buried in all those debits and credits, evidence of fraud exists. I can see the opposing attorney now, waving the general ledger pages and saying, “here in my hand are pages from the audit file and these pages reflect fraud.” Translation: the auditor had the evidence in hand and did not detect the theft. Oops.
Another? Copies of invoices. And what is the purpose? Keep one or two key invoices. Yes. That makes sense. But copies of 50 different invoices?
When I inquire about why unneeded work papers are retained, I hear the following excuses:
1. It was there last year (or we’ve always done it that way).
Does that make it relevant this year?
2. The client gave it to me.
Is it relevant? (Yes, I am repeating myself.)
3. I may need it next year.
Then put it in next year’s file.
4. It’s an earlier edition of a final work paper.
Delete it. (If I think I might need the earlier edition, I put it in a separate file which is deleted at the end of the audit.)
5. It’s relevant to my tax work.
Put it in the tax file.
6. I may need it this year.
Put it in a “to be filed” folder so it’s not in the way.
7. This fraud occurred twelve years ago, so we always perform this test.
Repetition without thinking is not auditing (even if the fraud previously occurred). Doing the same procedures over and over again is like a hamster running on a treadmill. There is plenty of motion, but no progress.
Off Season Work
Review last years’ audit files. See what can be thrown out this year. What is extraneous?
Do this review of the prior year files during your downtime (before busy season starts). Then your audit team won’t create those same items this year. You’ll cut your engagement time and the size of your audit file.
Goodbye worthless work papers. Hello profit.