Rebels Without a Clue

Little Ideas that Make Working Paper Review Easier

February 2008

Last month we started a discussion regarding working papers. And if you remember, we talked about Sharon and her high—but in many respects—wise standard for audit documentation.

Sharon wanted each working paper to stand on its own. If a hurricane blew into your working paper files and scattered your work, a woman who picks them up a few miles away should be able to tell what the working paper is for. Yes… she asked us to visualize that.

When I first started in auditing, the Yellow Book asked us to create audit documentation that a “reasonable person” could follow. As we learned last month, we now only have to be clear to an “experienced auditor”. If you had to be clear to any woman on the street who looked reasonable, you would have to do a lot more documentation. And “the reasonable person standard” is the standard under which Sharon earned her audit chops.

The stupidity of my rebellion

As an auditor with a whole four years under my belt, I decided that as soon as I got away from Sharon, I would make up my own standards for working papers and blow off all of her crazy, over-the-top requirements.

My next audit was an assignment I would hold for three consecutive years. The first year, having just left Sharon’s project, I did a very poor job documenting my audit work. The audit supervisor was going through a divorce, so he didn’t do a very thorough job on the working paper review (it happens). And I felt vindicated; doing things my own way paid off!

But the next year, I got my comeuppance. I was assigned the same audit area again and I couldn’t follow my own working papers. In particular, I remember being unable to remember where I had gotten my evidence. One of the client’s staff members—we’ll call him Stan—really didn’t like me. He was always sneering at me and doing his best to make my life hard. I didn’t do anything to him, I just don’t think he liked auditors and I don’t think he was happy that I was MUCH taller than him (that also happens).

So when I went back to Stan asking him for the same information AGAIN—in a lost, befuddled way AGAIN— he nailed me to the wall. “Weren’t you just here asking me these same questions? Don’t you write anything down?” Ew. Nope. I didn’t. I had to eat some major crow.

And leaving that meeting, I really appreciated Sharon’s standards. If I had implemented just some of her ideas, I would have been a lot better off.

And if you are anything like me, you can’t remember what you did last week! How in the heck can you remember what you did a year ago, or two years ago, when your working papers undergo peer review?

Sharon's wise requirements

Here is a bare bones list of the things that Sharon suggested for working papers. See if you think these ideas are wise and practical:

All cross-references are two-way

For example, if you got a number for working paper A from working paper B, you would write “B” on working paper A near the number and on working paper B you would write a reference to working paper A. Working paper review—especially on a financial audit—is nearly impossible without two-way cross referencing.

Every tickmark is explained

What, you say, is a tickmark!?! A tickmark is a little symbol that indicates a task the auditor has completed—for instance, a ∧ (carat) may indicate that a column of numbers has been summed and a √ (check mark) may indicate that attribute was verified. Sharon had a little tickmark legend—that included about fifteen tickmarks—that we had to paste into the inside cover of each binder of working papers. You were not allowed to change the meaning of those tickmarks! This sped her working paper review because she knew what you meant without having to look at a unique legend each time.

A review has been indicated

This is not a Sharon standard; it is a Yellow Book and an AICPA standard. How do you do this? The reviewer might initial and date each working paper. The review might initial only significant working papers. The reviewer might create a checklist and include it at the front of the working papers. The reviewer might initial the binder. The reviewer might write up review comments and include them in the working papers. Which approach is right? This is left up to your professional judgment. Sharon’s professional judgment told her to initial each working paper, fill out a review checklist, and write review comments. Very thorough.

Source, purpose, procedures, results, conclusion on every page

Whew—every page, Sharon? How about the first page of each unique working paper? Yes, I like that better. This is one of my favorite Sharon requirements. Please go my newsletter of November 2004 to read about it.

Source documents were included as necessary

This one is tricky. What does the reviewer actually need to understand what you tested? For instance, if you are testing thirty files to see that a certain document was initialed by the program director, do you have to include a copy of every one of the thirty documents in the file? I would say no. That would be killing trees unnecessarily. In my view, you only want to include a description of the files or the forms so that someone could replicate your work if necessary. So you might add a description of the file including the date, name, director’s initials, and date. You might even copy one of the forms and put it in the file just so a reviewer or a subsequent auditor could find the forms again easily.

If you have a few exceptions (forms without initials) you could copy those and put them in the working papers with an explanation of how the issue was resolved.

What is the right level of documentation? You’d better check with your own personal Sharon to find out what she wants. Another thing to consider is whether the issue is going to make it into the report. If the answer is yes, you might want to make copies of or scan in the exceptions—just to strengthen your evidence.

Each working paper is referenced to the program

If you can’t tie the working paper to a program step, you’d better take it out of there. Otherwise you are subverting the audit program.

Each working paper is understandable without further explanation

A very high standard, indeed—but a good thing to keep in mind as you document your work. Imagine yourself in a meeting with the reviewer of your working papers and they say “What did you mean here?” and you can’t remember! Credibility down the drain.

Each working paper is neat and legible

Wow, I always got written up for this. Thank the heavens for computers. It saved my career; my handwriting is atrocious.

Important calculations were verified

This is extremely important on a financial audit and why most new financial auditors are required to learn how to use a 10-key calculator their first week on the job. Personally, I added the phone numbers out of the Austin phone book for four or so hours on my second day of work. I wondered what I had gotten myself into, but it is a neat party trick.

Someone needs to sum or recalculate the numbers. For very significant numbers, the supervisor might even recalculate them, too.

If a document was created by the client, “PBC” is written on the working paper

This lets the reviewer know who created the working paper. This is important for the reviewer to know, because evidence obtained by the auditor directly is generally considered stronger than evidence that the client provides on themselves (they aren’t considered as objective about the information).

The working paper is titled, signed, and dated

Each working paper includes

• The name of project
• The unique title of the working paper
• The auditor’s initials
• The date completed
• A page number and reference

This is just plain practical. I see no reason to ever skip this, but hey, the standards don’t require it! Go ahead and skip it, you rebel you, and see how the review goes!

I think those are all reasonable requirements. Don’t you?

If you have any other tricks that make your life easier, please share them with me. I just might share them with the other readers.