Lighten Your Working Paper Load--No More Client Documents!

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How do you decide which client documents to retain in your hardcopy or electronic audit working paper files?  Certainly we should retain any client schedules that were prepared by the client for our use in performing and documenting audit procedures.  Beyond this, there really isn't any valid reason for retaining client documents in working paper files, hardcopy or electronic.

SAS No.103 instructs us to prepare documentation that is sufficient for an experienced reviewer to determine what we did, what we found and what we did about what we found (my paraphrase). Inspection and observation are common auditing procedures but retaining the documents we inspect or observe is not part of the required audit documentation!  Working papers and memos should be designed to satify the requirements of SAS No. 103.

My guess is that a substantial majority of CPA firm auditors retain copies of client bank statements, accounts receivable trial balances and inventory print-outs.  When asked why these documents are retained, most auditors have difficulty stating a valid reason, mainly because there aren't any!  Some might say that it preserves a record of the client documents used to perform procedures.  If this is true, then why haven't we retained every invoice, dpeosit slip, check copy and other client information we've looked at?  Tradition is the reason we keep these records and times have changed!

This may shock you but, given today's technology, what we look at is far less important than what we know about a client's management, it's employees and their accounting and internal control systems!  A CPA firm partner shared at one of my recent seminars that his firm missed a major fraud when auditing one of their clients.  A trusted bookkeeper with conflicting duties and responsibilities embezzeled a large amount of money from the firm's client.  The bookkeeper covered the fraud by scanning bank statements into a Word file, manipulating the transactions and printing the statement with the same fonts and colors as the original, even using the same paper stock as the bank!  It didn't help that CPA firm to retain a copy of the bank statement!

Concerning accounts receivable trial balances and inventory print-outs, their accuracy and reliability depends on the diligence of management and other eimployess performing at least entity-level internal controls.  If these key controls aren't performed, it's up to the auditor to perform procedures to determine the accuracy and reliability of these records.  Auditing standards require documentaion of these procedures, not copies of records that were tested!

I used to joke that we retained such records to increase the weight of the hardcopy files because we often billed by the pound!  Then along came electronic audit documentation.  It became easier to add client records to our file trees but the reasons for doing so didn't change. 

Here's the bottom line. Every unnecessary client document included in working paper files requires more unnecessary work!  Lighten your load and get rid of unnecessary client documents! It's one of the ways we can make more money on audits!

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