Documenting the Audit Team’s Field Work

Workpapers are the building blocks of an audit. If it’s not in the workpapers, the manager and partner might not know about it or consider its ramifications. And a badly-prepared workpaper is a time-waster. So, proper workpaper preparation is critical. This course teaches the basics of workpaper preparation—both the form of workpapers and their content—to make sure everything significant is properly documented. Staff auditors who prepare workpapers will benefit from this course.

Highlights include: what every workpaper should contain; how to document different types of procedures; opportunities to analyze and critique illustrative workpapers; and suggestions for improving efficiency.

Objectives: 

Identify the basic AICPA standards regarding workpaper documentation and proper workpaper technique

Prerequisite:  Experience on audit engagements

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 SAS No. 103, Workpaper Documentation, which is effective for audits of financial statements for periods beginning on or after December 15, 2005. Its goal is to explain the basics of workpaper technique and professional standards. It is designed for staff auditors; a separate course [title], designed for senior staff, discusses the professional standards in more detail.

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.

Organization

This course is divided into six 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.

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 SAS No. 103 and other SASs.

Introduction

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.

Basic Workpaper Requirements

Generally accepted auditing standards impose many specific documentation requirements based on the notion that documentation is an essential element of audit quality. The trend in standards has been towards more specific documentation requirements as the Auditing Standards Board came to believe that the need to document an item will drive practice to better incorporate required procedures and considerations into audits.

Although auditing standards establish specific workpaper requirements, decisions about the quantity, type, and content of workpapers is generally a matter of auditor judgment. That is, standards require that certain things be documented, but how you document them is up to you, based on your preferences and your firm's policies.

In this section, we examine the fundamental requirements imposed by SAS No. 103. Then, we review specific guidelines required by other SASs. To do your job well as an auditor, it is essential that you understand the details in your professional standards and the reasons for them. Begin by reading SAS No. 103 (AU section 339) reproduced at Appendix 1A, taking special note of the functions and nature of workpapers, their contents, and ownership.

Audit Standards Affecting Workpaper Content

SAS No. 103

SAS No. 103, Audit Documentation, requires the auditor to prepare and maintain workpapers. It says that the form and content of workpapers should be designed to meet the circumstances of the particular audit engagement, but workpapers should be sufficient to

• Provide a clear understanding of the
• Nature, timing, and extent of auditing procedures applied,
• Results of the auditing procedures,
• Evidence obtained and its source,
• Conclusions reached;
• Indicate who performed and reviewed the work and when the work was performed and reviewed;
• Show that the accounting records agree or reconcile with the financial statements or other information being reported on.

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