Workpapers: Documenting Internal Audit Activities by IMcRjU2

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									Workpapers:
Documenting Internal
Audit Activities

                 ACT3642
                   1/2009
           A.Phassawan S.
Agenda

 Importance of Workpapers
 Functions of Workpapers
 Workpaper Content and Organization
 Workpaper Preparation Techniques
 Workpaper Review Process
        Importance of Workpapers

 Workpapers are the written records kept by internal
  auditors that contain the documentation, reports,
  correspondence, and other sample materials
  gathered or accumulated during the internal audit.

 The term workpaper is an auditor expression that
  describes a physical or computer file that includes
  the schedules, analyses, and copies of document
  prepared as a part of an audit.
           Importance of Workpapers

 The common nature of all workpapers is that they are
  the evidence used to describe the results of an
  internal audit.
      They should be formally retained for subsequent
       reference and substantiation of reported audit
       conclusions and recommendations.

 As a bridge between actual internal audit
  procedures and the reports issued, workpapers
  are a means to an end.
          Importance of Workpapers

 Workpapers are created to fit particular audit tasks
  and are subject to a great deal of flexibility.
      Workpapers must support and document the purposes
       and activities of internal auditor.

 Workpapers are the only record of that audit work
  performed, and they may provide future evidence of
  what did and did not happen in the audit at some
  point in time.
Agenda

 Importance of Workpapers

 Functions of Workpapers
 Workpaper Content and Organization
 Workpaper Preparation Techniques
 Workpaper Review Process
          Functions of Workpapers

 The auditor forms an audit conclusion and opinion
  that are reported to the management, usually in the
  form of audit findings and recommendations
  published in an internal audit report.
      To support the auditor’s assertions and conclusions, the
       audit evidence, documented in the auditor’s workpapers,
       should be prepared.

 The objective of workpapers is to document an
  adequate audit that was conducted following
  professional standards.
         Functions of Workpapers
   The auditor can better understand the overall role of
    workpapers in the audit process by considering the
    major functions these papers serve:
         1.   Basis for planning an audit
         2.   Record of audit work performed
         3.   Use during the audit
         4.   Description of situations of special interest
         5.   Support for specific audit conclusions
         6.   Reference source
         7.   Staff appraisal
         8.   Audit coordination
           Functions of Workpapers

1.   Basis for planning an audit
    Workpapers from prior audit provide the auditor with
     background information for conducting a current review in
     the same overall area.

    They may contain descriptions of the entity, evaluation of IA,
     time budgets, audit program used, and other results of past
     audit work.
           Functions of Workpapers

2.   Record of audit work performed
    Workpapers describe the current audit work performed and
     reference it to an audit program.

    Even if the audit is of a special nature, such as a fraud
     investigation where there may not be a formal audit
     program, a record should be established as the auditing
     work is actually carried out.
          Functions of Workpapers

3.   Use during the audit
    The workpapers prepared play a direct role in carrying out
     the specific audit effort.

    For example, a flowchart might be prepared and then used
     to provide guidance for a further review of the actual
     activities in some process.
           Functions of Workpapers

4.   Description of situations of special interest
    As the audit work is carried out, situations may occur that
     have special significance in such areas as:
               Compliance with policies and procedures,

               Accuracy,

               Efficiency,

               Personnel performance, or
               Potential cost savings.
           Functions of Workpapers

5.   Support for specific audit conclusions
    The final product of most internal audits is a formal audit
     report containing findings and recommendations.

    The workpapers should provide sufficient evidential matter
     to support the specific audit findings that would be included
     in an audit report.
           Functions of Workpapers

6.   Reference source
    Workpapers can answer additional questions raised by
     management or by external auditors.

    They also provide basic background materials that may be
     applicable to future audits of the particular entity or activity.
           Functions of Workpapers

7.   Staff appraisal
    The performance of staff members during an audit-including
     the ability to gather and organize data, evaluate it, and
     arrive at conclusions-is directly reflected in the workpapers.


8.   Audit coordination
    An internal auditor may exchange workpapers with external
     auditors, each relying on the other’s work.
    Government auditors, in regulatory reviews of internal
     controls, may request to examine the IA’s workpapers.
        Functions of Workpapers

(i) Workpaper standards
 According to IIA standards, internal auditors should
    record relevant information to support the
    conclusions and engagement results.

   Based on practice advisories, workpapers can
    provide supporting information.
        Functions of Workpapers

(i) Workpaper standards
 An internal audit department should develop its own
    workpaper standards that are consistent with the IIA
    standards.

   Since workpapers will be used by other members of
    IA function, including management and QA, as well
    as external auditors and legal functions, the
    workpapers should follow a consistent set of
    standards.
          Functions of Workpapers

(i) Workpaper standards
 As following the standards, workpapers should be
    able to stand alone,
     so that an authorized outside party can read through them
      and understand the objectives of the audit, the work
      performed, and any outstanding issues or findings.
     Workpapers should be concerned with the following areas:
      (i) Relevant to audit objectives, (ii) Condensation of detail, (iii)
      Clarity of presentation, (iv) Workpaper accuracy, (v) Action
      on open items, and (vi) Standards of form.
        Functions of Workpapers

Concerned areas in workpapers
 Relevant to audit objectives
     The content must be relevant to both the total audit
      assignment and the specific objectives of the particular
      portion of the review.

     There is no need for materials that do not contribute to
      the objectives of the specific audit performed.
        Functions of Workpapers

Concerned areas in workpapers
 Condensation of detail
     Condensation and careful summarization of detail
      reduces the bulk of workpapers and makes their later use
      more efficient.

     A total summary with test results, some sample details,
      and a copy of the computer program used may be
      sufficient.
          Functions of Workpapers
Concerned areas in workpapers
 Clarity of presentation
       To present clear and understandable material, auditors
        and their supervisors should review workpaper
        presentations on an ongoing basis and make
        recommendations for improvements.

   Workpaper accuracy
       Accuracy is essential for all audit schedules and other
        quantitative data because workpapers may be used at
        any time in the future to answer questions.
        Functions of Workpapers

Concerned areas in workpapers
 Action on open items
     Questions are frequently raised during an audit, as part
      of the workpaper notes, or information is disclosed that
      requires follow-up.

     There should be no open items in workpapers on
      completion of the audit

     All workpaper items should either be cleared or formally
      documented for future audit actions.
        Functions of Workpapers

Concerned areas in workpapers
 Standards on form
     Workpapers must be prepared in a consistent format.
      The standards of form should include:
       Preparation of headings

       Organization

       Neatness and legibility

       Cross-indexing
         Functions of Workpapers

(ii) Workpaper formats
 The workpaper can be manually prepared and
     developed through word-processing software.

   Workpaper pages should be titled, dated, initialed by
    the preparer, and prepared in a neat and orderly
    manner.

   Exhibit 15.1 shows substance and format standards.
  Agenda

 Importance of Workpapers
 Functions of Workpapers

 Workpaper Content and Organization
 Workpaper Preparation Techniques
 Workpaper Review Process
         Workpaper Content and
         Organization
a) Workpaper document organization
 A typical audit will involve gathering a large number
   of materials to document the audit process.

   The form and content of those individual
    workpapers may vary greatly.

   Three types of documents are organized: (i)
    Permanent file, (ii) Administrative file, and (iii) Audit
    procedure file
           Workpaper Content and
           Organization
(i)   Permanent files
     A permanent workpaper file contains data of a
      historical or continuing nature pertinent to current
      audits.
         Overall organization charts of the audit unit
         Charts of accounts and copies of major policies and
          procedures
         Copies of last audit report, the audit program used, and
          any follow-up comments
         F/S about the entity and other useful analytical data
         Information about the audit unit such as major products,
          processes.
           Workpaper Content and
           Organization
  Permanent files
(i)
 A permanent file is not meant to be permanent in
  that it will never change; rather, it provides the
  auditor a source of background material to help plan
  the new audit.

     The permanent file is a source of continuity to tie
      audits together over time. Exhibit 15.2 shows
      example.
         Workpaper Content and
         Organization
(ii) Administrative files


(iii) Audit Procedures files
   These files and folders record the actual audit work
    performed and vary with the type and nature of the
    audit assignment.
          Workpaper Content and
          Organization
    Most internal audit procedure files contain the
     following 9 elements:
    1) Listing of completed audit procedures
       Workpapers document the audit procedures and include
        copies of the audit programs along with the initials of the
        auditors and the dates of the audit steps.
       Commentary notes may be on the programs or attached
        as cross-referenced supplementary notes.
       Exhibit 15.3 shows the example.
       Workpaper Content and
       Organization
2)   Completed questionnaires
    Some internal audit functions use standard
     questionnaires covering particular types of internal
     control procedures.
    These questionnaires normally provide for yes and no
     answers and appropriate supplementary comments.
       Workpaper Content and
       Organization
3)   Descriptions of operational procedures
    Workpapers frequently describe briefly the nature and
     scope of a specific type of operational activities.
    This description can provide a basis for later audit
     management probing and evaluation.
    It can be in flowchart.
    The auditor should always note the source of information
     to develop this description.
       Workpaper Content and
       Organization
4)   Review activities
    Many operational audit workpapers cover specific
     investigations that appraise selected activities.
    These can include testing of data, observations of
     performance, and inquiries to designated individuals.
    Exhibit 15.4 shows an example.
         Workpaper Content and
         Organization
5)   Analyses and schedules pertaining to financial
     statements
    In a financial audit, a special variety of workpapers
     relates to attesting to accuracy of FS or account
     balances.
    Fairness and accuracy statements may include:
      Analyses of individual accounts, such as accruals
      Details of backup data and supporting physical counts

      Results of specific kinds of verification

      Explanations of adjustments to accounts

      Summaries of statement balances and adjustments
       Workpaper Content and
       Organization
6)   Organizational documents
    Organization charts, minutes of meetings, polices or
     procedures, and copies of contracts are basic
     organization documents.
    The internal auditor does not have to include all material
     in the workpapers.
    For example, it may be sufficient to include a table of
     contents and have relevant extracts rather than
     incorporating an entire procedures manual.
       Workpaper Content and
       Organization
7)   Findings point sheets or drafts of reports
    Point sheets describing the nature of the audit finding as
     well as preference to the detailed audit work should be
     included in audit procedures files.


8)   Supervisor’s notes (see exhibit 15.8)
    During an audit, the in-charge auditor or audit supervisor
     prepares review comments that may require explanation
     by the auditor.
    Further audit work may be needed.
       Workpaper Content and
       Organization
9)   Audit bulk files
    Internal audits often produce large amounts of evidence
     materials, which should be retained but not included in
     the primary workpapers such as the returned
     questionnaires.
    These materials should be classified as workpapers but
     should be retrieved from the bulk file as necessary.
Agenda

 Importance of Workpapers
 Functions of Workpapers
 Workpaper Content and Organization

 Workpaper Preparation Techniques
 Workpaper Review Process
          Workpaper Preparation
          Techniques
   There are several basic techniques needed for
    preparing adequate workpapers.
         Indexing and cross-referencing
         Tick marks
         References to external audit sources
         Workpaper rough notes
             Workpaper Preparation
             Techniques
1)Workpaper indexing and cross-referencing
 Similar to reference notations in textbooks, sufficient
  cross-references and notations should allow an
  auditor to take a significant reference and trace it
  back to its original citation or source.

    Index numbers on workpapers are the same as
     volume and page numbers in a published textbook.
        Exhibit 15.1 show a workpaper page with an index
         number.
          Workpaper Preparation
          Techniques
1)Workpaper indexing and cross-referencing
 Cross-referencing refers to placing other reference
  workpaper index numbers within a given workpaper
  schedule.

    Cross-reference numbers are important in financial
     audits where all numbers on various schedules
     should be tied together to ensure consistency.
          Workpaper Preparation
          Techniques
2)Tick marks
 Tick marks are a form of auditor manual or pencil
  shorthand notation.

    The auditors need only note somewhere in the
     workpapers the tick mark used for each specific
     propose.
          Workpaper Preparation
          Techniques
2)Tick marks
 Standard tick marks improve communication
  because audit management can easily review and
  understand workpapers.

    Exhibit 15.7 illustrates the set of traditional tick
     marks that were used in the pencil and paper days.
            Workpaper Preparation
            Techniques
3)References to external audit sources
 Internal auditors often record information taken
  from outside sources.
        For example, an auditor may gather an understanding
         of an operation area through an interview with
         management.
        IA would record that interview through workpaper notes
         and rely on what was told as the basis of further audit
         tests or conclusions.
        It is important to record the source of such commentary
         directly in the workpapers.
          Workpaper Preparation
          Techniques
3)References to external audit sources
 Auditors may need to reference an external law or
  regulation to support their audit work.

    In all, workpapers should clearly indicate the title
     and source of all external references.

    Exact page copies can be included to make a
     specific point when necessary, but a reference
     notation is normally sufficient.
            Workpaper Preparation
            Techniques
4)Workpaper rough notes
 When conducting interviews, auditors often make a
  rough notes, often written in shorthand easily
  readable only by the auditors.
        Auditors should rewrite these rough notes into
         commentary.


    The rough notes can also be included in the
     workpapers, placed in the back of workpaper
     manual binder or even in a separate file.
Agenda

 Importance of Workpapers
 Functions of Workpapers
 Workpaper Content and Organization
 Workpaper Preparation Techniques
 Workpaper Review Process
          Workpaper Review Process

   All workpapers should go through an independent
    internal audit process to ensure that:
         All necessary work has been performed,
         Everything is properly described, and
         The audit findings are adequately supported.

   CAE has overall responsibility for this review but
    usually delegates that work to supervisory members
    of the IA department
         Workpaper Review Process

   Evidence of this supervisory review should consist
    of the reviewer’s initials and dates on each
    workpaper sheet reviewed.

   In addition to initialing completed workpapers, the
    supervisory reviewer should prepare a set of notes
    with any questions raised during the review
    process to give to the responsible auditor for
    resolution.
         Workpaper Review Process

   Some of these questions may be of a more
    significant nature and may require the auditor to do
    some additional follow-up work.

   Review questions should be cleared promptly, and
    the reviewer should take the responsibility to ensure
    that all open questions are resolved.
         Workpaper Review Process

   This workpaper review process should always take
    place prior to the issuance of the final audit report.

   This will ensure that all report findings have been
    properly supported by audit evidence as
    documented in the workpapers.
QUESTIONS

								
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