Clearly written working papers

A quick stroll down memory lane

Let me take you on a quick stroll down my memory lane. I was a young auditor, fresh out of university, working on my second or third audit. I was a high potential, as I had already achieved mastery of those skills essential to a young staff assistant: I knew how to make one mean pot of coffee and I had decyphered the hidden workings of the mainstream copying machines. Real auditing I had not yet done, but I was ready and eager to take that next, defining step in my career.

I was asked to perform a reconciliation on cash balances, one of the most basic of external audit assignments. And I had every intention to audit these balances the way they had never been audited before. I was going to make a mark as the best staff assistant they had ever seen.

Before I go on, you need to know a bit of logistical context: we used to work with big yellow 14-column working papers in those days. I know this dates me a bit. The 14-columns, which folded in three to make a neat “letter” or “A4” sized “booklet” were ideal for documentation purposes. You attached the evidence, usually copies of relevant documents, to the left side of the paper and documented on the two right “sides”.

There was some minor issue with the reconciliation, but as a first year staff assistant intent on immediate fame, it did not seem that minor to me. So I documented and documented, I wrote and wrote … ending up attaching two more 14-columns to that already large initial one. As one side of one single 14-column covered about 3 standard “letter” or “A4” pages, that made for about 8 pages of documentation plus one page with evidence attached.

I very proudly showed up at the desk my senior was sitting at. If I would have been a dog, there would have been tail wagging involved. A lot of it. My senior looked at the working paper, in amazement and disbelied which I, for a second there, mistook for admiration, then uttered something I – to this day – refuse to believe was anything else than: “You have got to be kiddin’ me …” pulled off the evidence and shredded the entire working paper. Needless to say it took a bit of time, because there was a lot of paper. He then sent me away with a simple: “Again, and to the point.”

Six considerations for better working papers

I was heart broken. There went all my good work. That evening, he took the time to show me what was wrong with my well-intentioned approach. That one evening has taught me what it really means to write clear and concise working papers. He told me that:

• my main audience was him, the audit manager and the audit partner when they were reviewing the working papers. Each of them was under significant time and budget pressure and had a lot of other, more important work to do. They needed to be able to glance at the working paper and see immediately whether or not there was an issue and if so, what that issue was.my working paper was not a work of literary art, nor should it be. Write what needs to be written, but nothing more. Be concise. Be clear, use often used words that can only be interpreted in the way they were intended to be. That was also intended for the secondary audience, third parties reviewing the working papers in case of issues.
• If there was no issue or even a minor issue, I need to state that clearly. I did not have the obligation to recount, in detail, what my testing approach was if that was already documented in the work program. And if it wasn’t, I first needed to explain why I adopted an alternative approach than the one well established over years of auditing that specific client. In case of no or minor issues, I need to sign off on the work program indicating the work had been performed and I needed to conclude on the working paper.
• If there was a material issue, I needed to explain what the issue was, what its potential impact could be, what my sources of information were and how I validated these sources of information in as far as that had not yet been described in the work program.
• The cut-off on whether or not something was important was the materiality established by the manager and the senior prior to the audit. Materiality was not based on my opinion, it was based on an objective, reproduceable calculation. Nothing more, nothing less. Materiality is a risk acceptance threshold.
• writing in pencil instead of a pen may feel very junior high, but it allows for comments and calculations on working papers to be erased and rewritten with ease. That’s an efficiency point, both for writing and reviewing. Most managers and partners don’t like to review working papers with visible and confusing corrections, as these again ask for time to review and understand.

It is essential to be as concise and as clear as possible when writing working paper documentation. The purpose of the documentation is to ensure your analysis can be reviewed and if necessary reperformed based on the available data, leading to the same conclusions you had.

Good documentation is essential, especially using CAAT

Ensuring your working papers are written as clearly and as transparantly as possible becomes even more essential when you are performing computer aided testing. While likely the least exciting part of the analysis, documentation is a must-do considering that this type of testing can quickly take you down the proverbial data rabbit hole, following interesting data threads. If you do not clearly document what you are doing in every step of that process, understanding and reperforming your analysis will become difficult if not impossible, even for yourself. It is therefore important to be as concise and as clear as possible.

If …, then …

If you fail to produce clearly written working papers, there are two possibilities:

• in the best case, your audit senior and manager will give you the benefit of the doubt but will not be able to adequately judge the relevance of your work. This reflects poorly on you, and if you have made a mistake, you will be responsible for the consequences;
• in the worst case, you will be asked to reperform the work and the documentation, which is a waste of precious time and money for your audit organization.

And that is why audit working papers need to be written clearly.