A Simple Guide to Effective Working Papers

Working papers are a big deal in accounting. They're not just about jotting down what accountants do, they're about proving the financial conclusions they come to are solid. Below we break down why working papers are so vital for getting financial statements right, and keeping everything transparent, accurate, and by the book.

Putting together working papers isn't just a step in the accounting process, it's what ensures financial statements are reliable and stand up to scrutiny. These documents make sure everything's accurate and meets standards, and you can defend your work when needed. They also provide an organised way to approach preparing financial statements that stand up to review or audit scrutiny.

Why Do We Need Working Papers?

Working papers are the backbone of the whole process and here’s what makes them so important:

• Recording the work done: each step in compiling the financial statements, payroll, debtors’ reconciliation etc., ensuring everything's out in the open and done properly.

• Making sure it's right: They check and double-check all the numbers and adjustments to keep mistakes out of financial statements.

• Backing up claims: They provide the evidence needed to show that all the financial details reported are complete and accurate and that the value of what's owned or owed is spot-on.

• Sticking to the requirements: They prove that the way financial statements are put together meets all the required standards, which is essential for any audits or reviews.

• Helping with audits and reviews: When financial statements are checked by outside parties, working papers are key to showing the work that’s been done.

• Looking back and moving forward: Allowing accountants to revisit certain decisions made, which is helpful for future work or if any questions come up.

• Covering your bases: In any legal tangles or if someone suggests the work wasn't done right, working papers are there to show everything was above board.

Basic Layout of a Working Paper

The look and details of working papers may differ but sticking to a few key practices is crucial. As a minimum, every working paper should include:

• A Clear Title and a Unique Reference Number or ‘ID’: This allows working papers to be separately identified and referred to. It also represents a place in the file where the document can be found.

• Client’s Name and Date Info: So, you know who it’s for and the relevant period or financial year-end.

• Who did What and When: Including signatures and dates for who prepared, reviewed, and approved the papers.Where the Info Came From: Like bank statements or invoices.

• Details on Transactions: What happened, when, how much, and what it affects.

• The Math Work: Showing how figures were calculated or adjusted.

• Any Needed Adjustments: Including important changes to get the financial statements right.

• Links to Other Documents: To provide extra context or detail. Use the unique reference number of the other document.  

• Final Thoughts: Especially if any differences found aren't big enough to change the financial statements.

The basic concept is that if you find a lone working paper on your desk you should be able to identify the nature of the working paper, the client and the financial year it applies to that will enable you to return the document to its correct place.

Types of documentation

Accountants, reviewers, and auditors rely on a range of documents to do their jobs effectively including everything from plans and checklists to the actual data and records they examine. But which of these are working papers and which are evidence? Let us have a look at the difference.

• Working Papers

Working papers are prepared by the accountant to document the work performed. It details the steps taken, from the initial planning to the conclusions or decisions made. They show all the necessary information as discussed above, ensuring everything was done properly and logically. Lead schedules, bank reconciliations, and tax calculations are typically working papers accountants draw up to support disclosures in the financial statements.

• Evidence

  Evidence, on the other hand, is collected during the work performed mainly to support the work done and the decisions documented in the working papers. It's the hard data received from the client or a third party—things like invoices, bank statements, tax assessments, contracts, and minutes documented from interviews. Accountants use evidence such as bank statements to confirm the transactions and balances recorded while reviewers or auditors use it to draw conclusions and base their final opinions on.

Making Use of Tickmarks

Tick marks are a form of shorthand method mostly used to show work performed and conclusions drawn efficiently. It is widely used to indicate that you have confirmed the balance or checked something on your working papers. These tick marks quickly show what's been verified without long explanations.Top of Form

 Each tick mark means something different. For instance, "C" means they've confirmed numbers add up correctly, and "CC" is used when two sets of related numbers have been verified against each other. Although some tickmarks are well-known and widely used, you may use your own – as long as you explain their meaning in your working paper by inserting a legend. See the example below:

Displaying the work performed in this manner simplifies the review process of financial statements not only for a compiler but also for reviewers and auditors.

Organise your work - Cross-referencing

Cross-referencing is a way to link the information in one document to related information in another, making it easier to find and verify details. This helps anyone reading the documents understand where to find supporting information or where the numbers came from.

For example, when you work on a balance sheet and see the total for equipment expenses. On the balance sheet working paper, they might write "See Schedule 2.1.1." This means that if you flip to "Schedule 2.1.1" in their working papers, you'll find the fixed asset register with a detailed list of all equipment pur.chases that add up to the total expense on the balance sheet.

Here’s another way to look at it: It’s like when you're reading a textbook, and there’s a note in the margin that says, “Compare with Figure 7.2.” You go to Figure 7.2 and find a diagram that helps explain the text you’re reading. In accounting, cross-referencing ensures that all the financial data is backed up by evidence, and it tells you exactly where to find that evidence

Download CIBA’s Working Paper Template with an Example

Download CIBA’s working paper template and example that can be used by accountants to document their work.