Internal audit workpapers can be seen as a “link” between actual internal audit procedures and the reports issued as results of an internal audit process, created to fit particular internal audit tasks, have to support and document the purposes and activities of an internal auditor, regardless of their specific form. But that is the short story.
This post discusses major functions of internal audit workpapers. Before going into the topic, let us have a look, first, at a short-summarized process of an internal audit. Read on…
How Does An Internal Audit Process Work?
Internal auditing is an objective-directed process of reviewing selected business documentation as well as interviewing members of the enterprise to gather information about an activity to support an audit objective.
In short, an internal auditor examines those materials and information gathered from interviews to determine if:
- the objectives of the audit are being met; and
- whether or not appropriate standards and procedures are being followed.
Based on the evaluation, the internal auditor forms an audit conclusion and opinion that is reported to the management of the organization.
The conclusion and opinion—usually in the form of audit findings and recommendations published in an internal audit report—should be supported by legitimate and strong and well-documented audit evidences, popularly known as “the evidential matter”, which are essentially series of internal audit workpapers.
The audit evidence, documented in the auditor’s workpapers, must be sufficient to support the internal auditor’s report. These form the documented record of who performed the audit and who reviewed the work, as well.
Major Functions of the Internal Audit Workpapers
Other than for internal management reporting purpose, the internal audit workpapers maybe—in some situations—submitted to some legal institutions, regulatory authorities, or governments, through court orders, as supporting evidence.
The major functions of auditor workpapers include:
Function#1. As Basis for planning Of an Internal Audit
Workpapers from a prior audit provide an auditor with background information for conducting a current review in the same overall area. They may contain descriptions of the entity, evaluations of internal control, time budgets, audit programs used, and other results of past audit work.
Function#2. As Record of Audit-Work Performed
Workpapers describe the current audit work performed and also provide a reference to an established 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 kept of the auditing work carried out. This workpaper record should include a description of activities reviewed, copies of representative documents, the extent of the audit coverage, and the results obtained.
Function#3. Use During the Audit
In many instances, the workpapers play a direct role in carrying out the specific audit effort. A flowchart might be prepared and then used to provide guidance for a further review of the actual activities in some process. Each of these elements would have been included in the workpapers in a previous audit step.
Function#4. As 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 established policies and procedures, accuracy, efficiency, personnel performance, or potential cost savings.
Function#5. As Support for Specific Audit Conclusions
The final product of most internal audits is a formal audit report, containing audit findings and recommendations. The documentation supporting the findings may be actual evidence, such as a copy of a PO lacking a required signature, or derived evidence, such as the output report from a computer-assisted procedure against a data file or notes from an interview. The workpapers should provide sufficient evidential matter to support the specific audit findings that would be included in an audit report.
Functions#6. As Reference Source
Workpapers can answer additional questions raised by management or by external auditors. Such questions may be in connection with a particular audit report finding or its recommendation, or they may relate to other inquiries. For example, management may ask internal audit if a reported problem also exists at another location that is not part of the current audit. The workpapers from that review may provide the answer. Workpapers also provide basic background materials that may be applicable to future audits of the particular entity or activity.
Functions#7. For Audit Coordination
An internal auditor may exchange workpapers with external auditors, each relying on the other’s work. In addition, government auditors, in their regulatory reviews of internal controls, may request to examine the internal auditor’s workpapers.
Internal audit workpapers acts as principal record of an internal audit work performed but, overall, these are to document that an adequate audit was conducted following professional standards.