Smart Audit Bundle
An audit bundle (a.k.a. set of audit working papers) is effectively the set of working papers that formally documents and is the authoritative evidence of the work performed to support the audit opinion provided on a financial statement issued. Such an audit bundle could support the work of an independent third-party auditor or an internal auditor (i.e. not independent) which performed that work.
An audit bundle has things like:
- engagement letter
- plan and strategy
- materiality passements
- risk assessments
- internal controls documentation such as flowcharts, narratives, walkthroughs
- prior period financial statements
- trial balance prepared by client or adjusted trial balance
- lead schedule which serves as the backbone for the audit bundle
- detailed trial balances of the various accounts on the trial balance
- reconciliations
- sampling documentation
- confirmations
- inventory count observations
- analytical procedures
- professional judgments made
- conclusions reached
- significant matters and how those matters were resolved
- misstatements
- going concern evaluation
- review notes and how the review notes were cleared
- communications with management
- legal communications
- representation letter from management
- final financial statement
When I began my career in accounting in 1982 as an auditor with Price Waterhouse, audit bundles were literally 100% paper. The Price Waterhouse audit bundles were held together by a brass fastener and as a new staff accountant, you were provided with a tool that you would use to punch a hole into the upper left hand corner of the paper working papers you created to attach your paper working papers to the audit bundle.
But within three months, I was creating many of those same working papers and schedules first in VisiCalc and then Lotus 1-2-3. I would create those schedules and working papers electronically, then print them out, and tape them into the bundle of paper that supported our audits. The Compaq luggable computer was invented and electronic spreadsheets where even more compelling. But all audit work was still printed out on paper.
In about 2002, I was invited to join a conference call by a partner of a Big 4 professional services firm. On that call, the partner explained that this Big 4 firm had achieved a milestone and that they now had 100% electronic audit bundles. All the audit work this Big 4 firm did was now in an electronic format using electronic spreadsheets, electronic word processor documents, PDF, HTML, and other such electronic "e-paper" formats.
Today, pretty much all accounting and audit working papers tend to be 100% electronic proxies for those paper documents created in Excel or some other electronic spreadsheet, Word or some other electronic word processing document, PDF generated from some word processing document, and maybe HTML. All of these are presentation oriented proxies for documents and all of these documents are readable by both humans and machines such as computers; but none of these documents is truly interpretable by those machines. These electronic "e-paper" documents are very useful because the electronic documentation can be made available anywhere on earth (given the proper access) to dispersed audit teams and their clients.
The next step in the evolution of accounting and audit working papers and schedules which are contained within these audit bundles will be for those accounting/auditing/analysis artifacts to be interpretable by machine-based processes. Rather than being proxies for documents as they are now, these audit bundles will be much more like databases and knowledge graphs which can be reliably and effectively queried. These artifacts will be able to be interrogated using machine-based processes or by human-based processes or a combination of the two.
But even more important, these modern smart audit bundles will be based on global open industry standard physical technical formats, they will be model-driven rather than documents, they will be represented semantically (i.e. "things" not "strings") which enables artificial intelligence to better interpret the information contained in those bundles, and auditors will gain superpowers from new artificial intelligence powered tools for working with all that information. These new modern "smart audit bundles" will empower "smart software tools" with interesting, even exciting new capabilities.
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