Documenting the Audit Team’s Field Work

• Chapter 0 - Overview
  • Introduction
  • Why Proper Workpapers Are Important
  • Organization
  • Conclusion
• Chapter 1 - Definition of Workpapers
  • Learning Objectives
  • Introduction
  • Why Workpapers Are Important
  • Basic Workpaper Requirements
    • Audit Standards Affecting Workpaper Content
    • Audits Done under PCAOB Standards
    • Other Professional Services – Summary of Standards
  • The Nature of Workpapers
  • Summary
  • Appendix 1A – AU Section 339
  • Appendix 1B – Statement on Auditing Standards Audit Documentation (Redrafted)
• Chapter 2 - Preparing and Maintaining Workpapers
  • Learning Objectives
  • Introduction
  • What Workpapers Are
  • What Should be in the Workpaper File
  • Types of Workpaper Files
  • What Every Workpaper Should Contain
    • Indexing and Cross-Referencing Workpapers
  • Workpaper Control
  • Completing the Workpaper File
  • Computer-Prepared Workpapers
  • Summary
• Chapter 3 - Types of Workpapers
  • Learning Objectives
  • Introduction
  • Workpaper Flow
  • Primary Detail Schedules
    • Analysis Schedule
    • Recalculation of Computation Schedule
    • Comparison Schedule
    • Reconciliation Schedule
  • Lead Schedules
    • Financial Statement Assembly Schedules
  • Trial Balance
  • Tickmark Legend
  • Adjustments and Reclassifications
  • Revenue and Expense Workpapers
  • Dual-Purpose Workpapers
  • What All of These Workpapers Show
  • Summary
• Chapter 4 - Documenting Audit Tests
  • Learning Objectives
  • Audit Evidence
  • Documenting Risk Assessment and Internal Control
  • Documenting the Understanding of the Client’s Internal Control
  • Tests of Details
  • Analytical Procedures
    • Documentation Requirements
  • Summary
    • Traps to Avoid
• Chapter 5 - Workpaper Critique
  • Learning Objectives
  • Introduction
  • The Good
  • The Bad
    • Audit Programs
    • Analytical Procedures
    • Shortsighted Analyses
    • Blithe Comments
    • Review Notes
    • Indexing and Cross-Referencing
    • Adjustments
  • The Ugly
• Chapter 6 - Improving Workpaper Technique
  • Learning Objective
  • Introduction
  • Getting Workpapers Prepared More Economically
  • Using Workpapers More Efficiently
  • Improving Workpaper Clarity
  • Avoiding Unnecessary Audit Procedures
  • Summary
• Chapter 7 - Latest Developments

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Chapter 0 - Overview

Introduction

This course is designed to instruct staff accountants in the proper preparation of audit documentation. CPAs generally refer to audit documentation as workpapers (or working papers), so that is the terminology used here. This course discusses

• The professional standards regarding workpaper documentation.
• Proper workpaper technique.

This course is based on AU Section 339 (previously indexed as SAS No. 103), Workpaper Documentation, which is effective for audits of financial statements for periods ending on or after December 15, 2006. Its goal is to explain the basics of workpaper technique and professional standards. It is designed for staff auditors; a separate course, designed for senior staff, discusses the professional standards in more detail. The standard has been reproduced in this workbook as Appendix A.

In 2008 the AICPA Auditing Standards Board embarked on its clarification project, which reformats existing SASs without changing the standards embodied in them. The new drafting conventions involve

• Stating the objectives of the standard,
• Including a section with definitions of technical terms used in the standard,
• Presenting the requirements at the beginning of the standard followed by a separate section containing related application and other explanatory material.

As part of this project the Board issued a new version of SAS No. 103, called Audit Documentation (Redrafted). After all of the SASs have been clarified, they will be issued in a single publication in codified format, all bearing the same effective date. Currently, the standard indicates an effective date of December 15, 2010; however, the Board recognizes that date might need to be deferred.

The reformatted standard is presented in Appendix B.

Why Proper Workpapers Are Important

After the audit procedures are complete, the workpapers are the audit. They represent the only documented record of what was done and what the auditor found. The only way the auditor can reconstruct what was done is either through memory or by referring to the workpapers – and the passage of time or later circumstances will likely question the reliability of the auditor's memory.

In addition, workpapers are the primary communication vehicle among auditors. Workpapers prepared by staff are reviewed by more senior members of the audit team to ensure that the work was done properly and all relevant factors were considered in forming an opinion on the financial statements being audited. Faulty workpapers could result in faulty communications among the audit team and lead the CPA firm to issue the wrong opinion on the financial statements.

Finally, generally accepted auditing standards pose some specific requirements for workpapers that must be met if the work is to be done in accordance with GAAS. Requirements established by other bodies may also include specific workpaper requirements that must be adhered to in specific situations.

Thus, the proper preparation of workpapers is critical to the performance of the audit.

Work Paper Review

This course will also teach senior auditors how to review working papers to

• Ensure that adequate evidence has been collected and analyzed during the course of the audit to support the opinion on the client's financial statements;

• Ensure that audit work was performed in accordance with generally accepted auditing standards;

• Evaluate more effectively the judgment, skills, organization, and work efforts of staff members; and

• Improve the ability to extract relevant information from the mass of data reviewed during an audit and to present it concisely and comprehensively.

This course discusses the goals of senior-level working paper review, provides guidance on how to review them and illustrates through examples and a case common types of problems the senior-level review should detect.

Organization

This course is divided into ten chapters and includes illustrations and examples to increase participants' understanding of the material by considering the concepts and by implementing them.

The chapters and their content are as follows:

• Chapter 1, "Definition of Workpapers," discusses the authoritative standards for workpapers.

• Chapter 2, "Preparing and Maintaining Workpapers," discusses general approaches towards workpaper format and what all workpapers should look like and contain.

• Chapter 3, "Types of Workpapers," discusses the general types of workpapers that auditors prepare.

• Chapter 4, "Documenting Audit Tests," discusses how the auditor documents work on internal control and substantive procedures.

• Chapter 5, "Workpaper Critique," provides an opportunity for participants to analyze and critique illustrative workpapers.

• Chapter 6, "Improving Workpaper Technique," presents suggestions for improving the preparation of workpapers and for improving audit efficiency through improving workpaper technique.

• Chapter 7, "Working Paper Basics," discusses the basic GAAS requirements for audit documentation and how working paper review affects the audit.

• Chapter 8, "Conducting the Review," provides guidelines for the in-charge review.

• Chapter 9, "Typical Working Paper Shortcomings," discusses and illustrates common deficiencies in working papers.

• Chapter 10, "I.M. Well Memorial Hospital Case Study," provides an extended set of working papers for your review and critique.

Conclusion

The manual is designed to be a permanent reference tool. We hope your reading of this manual enriches your professional learning experience.

Chapter 1 - Definition of Workpapers

Learning Objectives

After completing this chapter you should be able to

• Describe why workpapers are necessary.

• Identify the standards that impose specific workpaper requirements.

• Define the workpaper requirements in AU Section 339 (previously indexed as SAS No. 103) and other applicable guidance.

Introduction

AU Section 339 (previously indexed as SAS No. 103), Audit Documentation, requires auditors on every engagement to prepare and maintain audit documentation, which is often referred to as working papers or workpapers. In this chapter, we examine that requirement and learn about specific workpapers that are required by other professional standards. We also look at the impact of practice-monitoring programs and the litigation climate on documenting the work performed.

Why Workpapers Are Important

The end product of an audit is the relatively brief auditor's opinion. This and the accompanying financial statements are what is seen by the company's management, creditors, and investors. Most people never see the large volume of workpapers, but this does not mean workpapers are unimportant. On the contrary, they are the foundation for the audit opinion, and they assist auditors during and after the audit.

During the audit, firm supervisors review the papers to ensure that the audit plan is being followed, to analyze results, and to decide if any adjustments to the plan are needed.

It is often the case that in lawsuits accountants are criticized or penalized not because their work was deficient but because their workpapers did not reflect the work done. That is, they did the work or considered the appropriate matters but could not prove it because the workpapers provided inadequate documentation. These accountants paid the price even though they applied the procedures that were appropriate in the circumstances.

If the workpapers do not reflect what was done, a court may have no basis to conclude that the appropriate procedures were performed. Failure to adequately document what was done may be assessed essentially as failure to perform appropriate procedures. Workpaper documentation is very important.

Workpapers are crucial after the audit because they

• Provide information about whether the audit was conducted as planned and whether the financial statements are presented in conformity with GAAP.

• Demonstrate evidence of conformity with auditing standards for supervisory review, practice monitoring programs (e.g., peer reviews), and for litigation, if necessary.

• Leave a roadmap for future audits.

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