Documenting the nature, timing, extent, and results of your procedures may seem as if it will break your audit budget, but many practitioners have found that this isn't the case. An AICPA study found that the most common audit issue is a lack of adequate documentation.
Strong documentation will enable you to comply with AU-C Section 230, Audit Documentation, and it also can lead to a more efficient engagement. The time spent documenting in accordance with the standard is an investment that will pay dividends later. Complying with the requirements of the Audit Documentation standard while implementing the best practices discussed here will help your firm perform high-quality work while increasing your efficiency.
TAKE A SMART APPROACH TO PLANNING
A sound audit plan is the foundation of an efficient and effective audit. When performing your planning procedures, take the time to really get to know clients and what is going on in their industry. Make sure the most experienced engagement team members are heavily involved in identifying audit risks and responses.
Once the audit plan has been established, map the audit in a memo, laying out the biggest risks, strategies to mitigate each risk, and references to where the work will be performed. This will give the partner a quick overview of the audit areas that matter the most while providing linkage to the working papers. Continue to update the memo as the audit progresses and new risks are identified.
Referencing the audit plan, ensure that your audit programs have been tailored to address your client's unique risks. For firms that use standardized materials from third-party providers, actively eliminating procedures that aren't necessary to support the audit opinion can increase efficiency while focusing the audit team's attention on the accounts and areas that represent the greatest risk.
If your firm's audit teams have been taking a SALY ("same as last year") approach—or worse, if they have been performing whatever procedures appear on a third-party provider's audit program regardless of risk considerations—they may be missing an opportunity to make significant gains in efficiency and effectiveness.
Although firms may have standardized audit procedures, each partner often has his or her own working paper preferences, which can create inefficiencies when staff members document their work. The solution is to require that all auditors use standardized working papers. To ensure proper documentation, use a format designed to comply with AU-C Section 230, covering the nature, extent, and timing of procedures; the results of those procedures; and any significant findings, issues, or professional judgments.
Firms should use standardized tick marks to avoid unnecessary repetition in the working papers. They should also design working papers to accomplish multiple purposes. For example, firms can use the same working paper to analyze a balance sheet account and related income statement accounts (e.g., fixed assets and depreciation expense) as well as provide necessary information for the entity's statement of cash flows (e.g., fixed asset additions and disposals), required disclosures (e.g., depreciation schedule), and/or tax return.
Eliminating unnecessary client documentation in the file boosts efficiency as well. For example, when an auditor adds copies of client bank statements to an audit file, he or she must scan in the documents, link pertinent information to the bank reconciliation, and obtain a supervisor's signoff. This is time-consuming, and it could lead to legal exposure. Remember: Not every audit procedure needs its own working paper. The nature, timing, extent, and results of some procedures can be documented by adding a few sentences to the audit program.
DOCUMENT NOW, SAVE TIME LATER
Instead of documenting while performing the audit procedures, auditors in the field sometimes decide to catch up with documentation later. However, there is a good reason that the standard calls for completing this step promptly. Documentation is more likely to be accurate if it is performed sooner rather than later. This approach also prevents the preparer from having to remember vast amounts of information or to repeat tasks after the procedure is performed.
In addition, meeting the requirements of AU-C Section 230 by documenting in a timely manner allows supervisors and partners to spend less time dealing with unnecessary questions and misunderstandings. It improves the chances that working papers can be reviewed in the field and that a draft report and management letter can be ready before leaving the client's office. It's much easier to identify problems and address questions to client staff when you're working down the hall from them than after you've left the field and you're trying to tie up loose ends.
Completing the review process and issuing the audit report on a timely basis also limits the auditor's responsibility for subsequent events procedures. When audit work is done on March 31, but the report is not issued until September, the auditor must consider events that have taken place in the meantime. That could require meeting with the client and performing various procedures to ensure that nothing has occurred that should be included in the financial statement disclosures. Timely completion of the report prevents these additional steps.
BE PREPARED FOR WHAT'S AHEAD
Good documentation also improves efficiency in subsequent-year audits. By documenting appropriately, the auditor is providing next year's audit team with a record of matters of continuing significance, helping them avoid duplication of effort, and giving them a solid foundation on which to build. They can walk in with a better understanding of what's ahead and the information that is needed, and they don't have to start from scratch.
Auditors will also be in better shape when it comes to internal inspections, peer reviews, and regulatory inspections. With more thorough documentation, less time should be spent addressing questions and concerns during reviews or inspections. By developing a cohesive set of working papers, the auditor is less likely to be required to redo work already performed in the field, make follow-up requests to clients, or, in a worst-case situation, recall an audit report.
About the author
Mark Koziel (Mark.Koziel@aicpa-cima.com) is AICPA executive vice president—Firm Services.
To comment on this article or to suggest an idea for another article, contact Ken Tysiac, a JofA editorial director, at Kenneth.Tysiac@aicpa-cima.com or 919-402-2112.
- "How Well Do You Know Audit Documentation Requirements?" JofA, Aug. 1, 2017
- "Audit Documentation: Tips for Getting It Right," JofA, June 2017
- "ASB Issues New Going Concern Auditing Standard," JofA, Feb. 22, 2017
- "Professional Liability Spotlight: Professional Liability Risk Resolutions for 2017," JofA, Jan. 2017
- "Maintaining Independence With Nonattest Services," JofA, Nov. 2016
- Audit Workpapers: Documenting and Reviewing Field Work (#733328, text; #GT-AUDW, group pricing)
- Audit Workpapers: Documenting Field Work (#163223, online access; #GT-CL4DFW, group pricing)
- Audit Workpapers: Reviewing Field Work Documentation (#163233, online access; #GT-CL4FWD, group pricing)
- New Staff: Core Concepts—Workpapers and Workpaper Documentation (#161060, online access; #GT-JEH, group pricing)
- Working Paper Documentation—Tax Staff Essentials (#157603, online access; #GT-TSE.WPD, group pricing)
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