Accounting reports are very vital in the running of any business. So, you may be wondering where working papers will be in the entire reporting business. Auditors and accountants prepare working papers as additional support for accounting statements. With a working paper, it becomes easy to summarize the data used by the accountant in the preparation of the statement.
There are different kinds of working papers that auditors and accountants prepare. One of the commonest amongst them is the worksheet. Most of the financial reports presented to shareholders and businesses come with a worksheet. The worksheet is primarily used to summarize the entire accounting process within an accounting year.
Aside from summarizing the accounting process, worksheets are also useful in the posting as well as adjustment of journal entries. A worksheet as a type of working paper is also vital in the preparation of trial balance.
Other types of working papers help in the tracking and recording of client’s transactions. These transactions include liabilities, purchase of fixed assets, as well as account receivables. Working paper comes with several details. These details give information on the findings made by the accountant in the course of preparing the account statement.
Work papers generally work to bring additional support to the professional judgments of accountants. They justify the actions taken in the recording of data and preparation of accounting reports such as bookkeeping and taxes.
The importance of white papers cannot be overemphasized. They have proven to be a rationale used in assessing the level of the accountant’s confidence in the financial statement.
Working papers pass through the scrutiny of competent auditors while running an evaluation of the business. They can be quite helpful in the accounting process. With the aid of a working paper, businesses, the tax office, and any other interested person will be able to see the work put in by the accountant.
With the aid of a working paper, the rationale behind the decision to include or remove certain expenses as deductibles is judged. The working paper also shows that the accountant in charge of the preparation of the account arrived at the outcome using relevant and reliable data.
Whenever a response is needed for a tax auditor, or the Internal Revenue Service needs an answer to an inquiry, the working paper always saves the day.
There are different types of accounting working paper and they include:
- Worksheet: this is used to summarize, track and record financial transactions.
- Tax working papers: these are financial documents that a tax professional produces in the process of filing for tax returns. Common among these documents are the W-2s, the 1098s, and the 1099s. Every receipt, contract, and other proof of payments provided by the clients are also very vital. Notes made while discussing with the business owner on tax filing also count as tax working papers.
Working papers are very important for businesses. Some of the benefits of the working paper include:
- It helps in quality control in accounting services
- It ensures that the integrity of the accounts is upheld.
- It provides evidence that the financial statements prepared were completed with strict adherence to due process.
- The working paper raises the reliability and relevance of accounting reports and statements.
- It has minute details of transactions and shows the rationale behind the accountant’s judgment as seen in the financial statement.
- It helps to keep in focus matters that may be of relevance in future account preparations.
While accounting working papers are vital in the preparation of an account, yet, some papers may not be necessary. The accountant or auditor must determine the type of working papers needed for a specific type of report.
The content captured in a working paper depends on the type of report or statement that will be prepared with it. A working paper will have some of the following relevant information:
- The name of the business or client
- The accounting period in view
- The subject in focus
- File references
- The signature of the person who was involved in the preparation of the working paper.
- The date the working papers were prepared.
The working document may be prepared by an external auditor or in-house employee. In a situation where the working paper is prepared by the employee of the company, copies should be sent to the audit team and other relevant authorities. Care must be taken to ensure that the working paper contains the relevant information required.
A good working should of necessity be up to par, with the requirements outlined in ISA 230. Therefore, the document must have the following features:
- Have a clear objective of the reason for the necessity of the whitepaper.
- Must of necessity state in clear terms the period the data was generated. This would ensure that the document is not mixed up with another one from a different accounting period.
- It should state the processes involved in generating the information and how valid such information is.
- Inna situation where the working paper makes reference to another working paper in a different period, the referenced document should be fully cited.
- A working paper should be able to give the result of the test conducted based on non-available facts without any form of bias.
- Conclusions reached as a result of the information provided by the working paper should be valid enough to withstand independent scrutiny.
- Referencing and appropriate filing is very vital. A good working paper will have top-notch referencing that will make it easier to find in the future.
- A working paper must be signed. The relevant signature required is that of the preparer. Getting the preparer to sign will help in channeling issues that may arise in the future to the right person.
Where a necessary feature is absent, it should be pointed out by the reviewer of the working paper.
Proper management of a working paper will go a long way to ensure that you make the most of the data it provides. What are the tips you can apply in the management of a working paper?
- Have a checklist of all the accounting functions and processes that you would be expected to follow. This will ensure that you adhere to best practices.
- Retain files electronically with the appropriate label for each document. This makes it easy to reference the documents in the future.
- The reviewer and preparer must be clearly stated in each working paper.
- Ensure that the purpose of each working paper is clearly stated.
With the evidence that working paper provides, accounting for your business will take a facelift. As a result, a working paper should be prepared by a competent individual who understands the process and is willing to adhere to it. Having a detailed and properly referenced working paper will help anyone who picks up the document to understand the transactions even when the preparer is not available to explain.