Are You Using Electronic Workpapers?

One of my best memories from my days working at CPA firms was a hilarious email stream about electronic workpapers. Yes, you read that right! The original email was from a student, writing to the head of recruiting at a firm which will remain nameless. The student listed all of their objections to working for that firm as numbered bullet points, and asked the recruiter to counter them. Seriously! One of their arguments was that the firm was not using electronic workpapers.

Maybe goes without saying, but for students reading this, your job during recruiting is to convince the firms to hire you… Not the other way around!

The recruiter forwarded the email to some colleagues, who had a good laugh, and forwarded it to their friends. When it comes to auditing, it’s a small world after all! A version of the email made its way around many other firms in our area, before landing in my inbox. The tone of the responses eventually changed from “Can you believe this student?!” to “Can you believe they don’t use electronic workpapers?!”

It was a little snarky, but all in good fun. Auditors love having a go at firms that didn’t hire them! The student emailer went about their due diligence inappropriately, but they had a pretty good point. How could a major firm operate solely on paper? How do you coordinate workpaper review if your partner is in a different state or your senior gets called away to put out a fire? How do you have a phone conversation about a workpaper only one of you can look at and reference? If you find a mistake at crunch time, wouldn’t you rather type in the correction than get out a bottle of white out?

In Internal Audit world, working exclusively on paper is much more common than it should be. There are many benefits to using a technology solution for workpapers; benefits that far outweigh the costs. Today, I want to encourage readers to advocate for your company, and your peers, to move toward fully electronic workpapers.

What are Electronic Workpapers?

For the purpose of this post, the term electronic workpapers refers to any program that auditors can use to compile and archive audit documentation. The core functionality is the ability to upload your work directly into the program, where you can then organize it, record review and approval with electronic signatures and date stamps, back up your work and lock down the finished product. The audit work is created using familiar tools like Word documents, Excel spreadsheets and scanned PDFs, which can be enhanced by digital cross-referencing tools and tick marks. You aren’t necessarily using any new methods of documentation; you’re creating better versions and storing them on the cloud.

There are several options on the market, and most software solutions will have additional capabilities, such as email alerts to auditees, importing and rolling forward G/L account balances, audit report creation, budgeting and time tracking tools, etc.

What are Paper Workpapers?

In the “good old days” at most firms, and the current days at many Internal Audit shops, all work is documented, reviewed and archived on paper. The work is prepared using programs such as Word and Excel, printed out and organized in a binder or accordion file. Workpaper review and sign-off is documented by physically initialing and dating the paper documents, and archiving means the binders of paper are filed and locked in a vault or fire-proof cabinet somewhere.

Departments that are still using paper likely have methods and conventions in place, which may work pretty well. So why change if you don’t need to?

Benefits of Going Paperless

First and foremost, uploading audit workpapers in their original form is easy and practical. Maintaining an original spreadsheet is inherently better than maintaining a printed copy, because you can see the formulas and trace dependents. The time allocated to formatting documents for printing, such as checking font size and margins, could be used for actual testing. You won’t be efficient on day one, as all new software takes some practice, but it will come quickly.

I already hinted at the ease of review using the cloud, for the simple fact that preparers and reviewers are usually not in the same physical place. Additionally, the software will have some sort of alert or marking when a workpaper is ready for inspection. Much easier than phone calls and emails back and forth!

Another obvious benefit of going electronic is that paper can be kind of a pain. In my first Internal Audit position, we used paper when I started. When I went to the field to audit a branch, I had to print out all my paper templates in advance, complete them by hand on site, and organize them into binders before review. When I went out of town for conferences, I often took printed workpapers, a hole punch, filing folders and other supplies with me to work on my projects during down time. A lot of unnecessary planning and energy! I also got some gnarly paper cuts.

Another great feature of this technology is the ability to control and lock down workpapers. During preparation, only one user will be able to access each document at a time, and an audit log of custody is maintained. At the end of the project, each electronic binder should be “closed” or “finalized” by the Chief Audit Executive, meaning the documents can’t be altered or changed and live permanently on your cloud-based server.

Finally, there are environmental benefits, though they are hard to quantify. The energy used to house documents on a server does not eliminate your carbon footprint, but I’ll take it over using endless reams of printed papers! Computers and servers are becoming more energy-efficient, but paper will always be made of trees, so reducing paper consumption is something we can always feel good about.

What is the Cost?

Really, it depends.

It depends on the size of your audit department, the price structure of the software company you choose, and the additional functionality you want. That said, $5,000 to $10,000 should cover implementation, with an annual support fee thereafter. Research options and perform cost comparisons well in advance of signing a contract, so you can include these costs in your budget going forward. Also consider that you may need a couple of mobile scanners for your department to use in the field, and plan accordingly.

Implementation Tips

A successful implementation is only possible through partnership with your IT department. Early on, bring IT into the fold and include them in your calls with sales representatives. They will see and hear things that you won’t, and can provide invaluable advice. As with all new software initiatives, you will need IT’s ongoing support; including them in the due diligence process gives them ownership and incentive to help the project succeed long-term.

A lot of these programs come with bells and whistles, which you may or may not need. Don’t feel like you are obligated to utilize tools if they are not providing you with value. For example, as a Chief Audit Executive, I used a software program for electronic workpapers which also had report creation functionality. But documents are kind of my thing; I liked my reports better! My auditees were used to their reports looking a certain way. Rather than utilizing the report creation function, we would just add our own version in Word and PDF to the report workpaper that auto-populated. It worked for us; we took what we needed from the software and ignored the rest.

Finally, you need a plan to handle all that paper! Consider designating hours in your budget for scanning old workpapers into the new system. This is a great project to take on during slow times, or as a mental break between difficult projects. If you have the budget for a summer intern, this is work that a business school student would happily take on. Be sure to set a date range and order of priorities, oversee the process and make sure the papers are shredded when scanning is complete.

Now I want to hear from you! Is your firm or department using paper or electronic workpapers? How does it work for you, what provider do you use and what tips can you offer other readers? Leave a comment!

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4 Responses

    1. As a one-person shop, you would not benefit from remote review with electronic workpapers. In my opinion, the rest of the advice in the article still applies and makes this an investment worth considering regardless of the department size.

  1. Are there any software products you would recommend for electronic workpapers? I think the cost you mentioned to set up the electronic workpapers makes sense. There would also be a cost to have some type of training either on site or off site. I have always been a supporter of electronic workpapers. If staff are added in the future this would be a great benefit, but also as I think about succession planning, having this in place could make that transition a lot smoother.

    1. I would not recommend a specific product, just because we don’t have an affiliate agreement with anyone at this time. (Hi software companies, we love you all!) This may be a good question to pose to any peer groups or forums you use to get a recommendation from someone in the field.I completely agree that succession planning would benefit from having a solution in place!

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