Keep the Big Picture in Mind When Reviewing Audit Documentation

Reviewing audit documentation has to be one of my least favorite tasks… ever. Why? Because it is often very difficult to understand and retrace the auditor’s thought process by looking at a set of audit documentation. Sometimes, it can take 30 minutes just to get a sense of the overall purpose of the set.

Two simple guiding principles of working paper review make the task a little less daunting… and both keep a big picture perspective!

The first is to concentrate on concepts before mechanics. The second is to review working papers at the top of the hierarchy first.

1. Check concepts before mechanics

Once, one of our more senior auditors took the lead in auditing bond arbitrage… a pretty technical subject.

He spent two days auditing and creating a fabulous looking audit document. It was a huge, fold-out spreadsheet with several columns and rows and a rainbow of tic marks and numbers. Honestly, it was worthy of framing and he was so proud.

Then the supervisor got a hold of this beautiful spreadsheet and started her review. She re-footed and re-cross-footed the columns. She checked the meaning of all the lovely tic marks and added one of her own.

Then, after spending about a half-day reviewing it, she realized the concept behind the spreadsheet was flawed. The senior auditor had gone down a bunny trail and tested attributes that had nothing to do with  our audit objective!

The entire spreadsheet was scrapped.

So, the auditor invested two days and the supervisor invested half-a-day. Of course, none of it was necessary.

If only the supervisor checked the concept of the audit document before the mechanics, she could have saved herself the effort.

How do you check the concept behind the document? If your team uses source, purpose, procedures, results, and conclusions in your audit documentation, then read that first paying close attention to the audit documentation’s purpose, since it should correspond to a step on the audit program.

I recommend you look at the audit program next. Of course, this assumes the audit program itself is good. And that brings me to my next point…

Follow the hierarchy of working papers

Only if documents and concepts at the top of the hierarchy are working well and are understandable do you step down to the next level of the hierarchy. This saves us time and effort.

The hierarchy of audit documentation is as follows:

1. Audit Objective
2. Summary Memo
3. Audit Program
4. Detailed Audit Documentation

The first thing you look at as a reviewer is the audit objective. If it’s vague and broad, just stop right there and hand the set of audit documentation back to the auditor. Tell them to refine the objective and update the rest of the set accordingly.

Once you’re satisfied with the audit objective, review either the summary memo or the audit program. Some folks don’t create summaries (I’m personally a big fan) so you may be forced to look at the program.

If the audit program seems disjointed and doesn’t satisfy the objective, again, stop your review and return the set of audit documentation to the auditor. No need going any further until the program is rewritten.

Next, assuming your audit program and summer memo are good, it’s time to move on to the detailed, individual pieces of audit documentation.

What do we review on those individual pieces of audit documentation? We make sure they satisfy the steps of the audit program. If the working papers contain a vague purpose or bad concept (not relevant or meaningful) stop there and hand it back.

Try it, you’ll like it!