Increasing Audit Profits Series No. 17--Five Ways to Minimize Audit Documentation
The purpose of designing cost-beneficial audit strategies is three-fold: (1) to collect sufficient evidence at assessed levels of risk to express an unqualified opinion on financial statements, (2) to create the most cost-efficient evidence mix and (3) to minimize audit documentation. All audit documentation is subject to the requirements of SAS No. 103 which, among other things, requires documentation of procedures performed and identification of evidence examined, findings and audit responses to those findings. Engagement documentation must also contain evidence of review by a leader as well as evidence of compliance with other quality control standards.
In other words, every document included in engagement files requires considerable preparation and review time. Minimizing audit documentation, therefore, can make significant contributions to engagement profits. Here are five ways that audit documentation can be minimized.
1. In the engagement performance section of the firm’s quality control document, give engagement leaders authority to select practice aids that are commensurate with the nature, size and complexity of it clients. When the content and the number of practice aids are modified by an engagement leader, a firm’s system of quality control should include review and approval of the selection by another qualified leader.
2. Prohibit use of the same-as-last-year (SALY) method of selecting documentation. A required part of planning on every engagement should be a discussion about unnecessary documentation used in the prior year and alternative documentation that can be prepared more efficiently in the current year.
3. Eliminate client records from engagement files. Copies of bank statements, perpetual inventory records and other journals and ledgers are examples of client records that ordinarily serve no purpose in audit documentation. References to the source of information, descriptions of how the information was selected and the documentation of unusual matters or exceptions on spreadsheets or memos take less time to assemble, file, index, cross-reference and review than unnecessary client documents.
4. Provide staff personnel with instructions on when and how to prepare standard working papers and memos. An outline of common spreadsheet and memo applications can reduce both preparation and review time charges. For example, using one spreadsheet to record unusual and other matters from reading a client’s general ledger may replace numerous individual analysis working papers.
5. Use electronic methods for creating working papers and schedules. Utilize client Excel schedules and other electronic records whenever possible to reduce preparation time. Obtain a sufficient understanding of the client’s IT system to eliminate performing mathematical checks of client-prepared documents.
My live and on-demand webcast entitled, Just Enough Working Papers, contains more detailed information on minimizing audit documentation. You can register through the applicable link on the left side of my home page, www.cpafirmsupport.com .