Workpaper Applications-Some Things to Consider
by Tom Davis, CPA  (October 20, 2006) 

Introduction
It does not take a rocket scientist to see that accounting firms have a significant opportunity to improve efficiency through a move to a paperless environment.  One of the most challenging aspects of making this transition from paper to paperless is the large number of different types of applications that are available for using in the paperless office.  Document management software, workpaper applications, Office suites, scanning software, and on and on and on. 

I have seen many firms get confused as to the differences between document management applications and workpaper software.  It is my opinion that most firms need both types of tools.  This article discusses some of the important aspects of workpaper software and looks at three workpaper tools.

What does a Workpaper application do?
There are two primary functions of this kind of software: trial balance features and workpaper organization and management.  Workpaper applications replace a firm’s existing trial balance tools (ATB, GoAudit, CCH Trial balance, etc.) for grouping and adjusting of client general ledger account balances for the preparation of financial statements and tax returns.  They also provide features for creating an “electronic index” for managing engagement documents (Word, Excel, PPDF, scanned images, etc.). 

So on the trial balance side, the opportunities for improving efficiency is the ability to create complete, final-quality financial statements and to transfer information to the tax application with minimal effort.  The workpaper indexing features makes it much easier to access workpaper information, to build advanced workpapers that use data from other workpapers, and to manage the work flow of the engagement (which workpapers have been completed, which are ready for review, which have been completed but subsequently changed.  Workpaper applications also offer significant features for safeguarding and controlling workpapers (this is important with the new 60 day rule for locking down audit files). 

Who are the players?
I feel that there are three vendors that have workpaper applications that have the features needed by accounting firms: Caseware, CCH, and Creative Solutions.  All three have an application that has the complete set of features that firms need.

Caseware
Caseware Working Papers 2006 from Caseware International (www.caseware.com) has exceptional trial balance and financial statement and workpaper creation capabilities.  New features for engagement management and integration with other applications have been added that increase its functionality for building very advanced workpapers and handling diverse workflows. 

Of the three applications discussed here, I frequently hear that Caseware is the most complex to use.  I caution that complexity is relative.  Caseware Working Papers 2006 is a comprehensive application with a larger number of features.  The more features, the higher the degree of complexity.  Firms should spend ample planning time to determine how the application is to be used so that training can focus on those features that are required. 

Caseware excels at creating final-quality workpapers. Caseware Working Papers creates financial statements, reports and other workpapers using either the built in report writer or by integrating information with Microsoft Word and Excel.  The Word and Excel links are very popular with firms because they provide extensive formatting flexibility and users can easily manipulate information.  However, this flexibility can add to complexity, increase reviewer time substantially, and make it more difficult for less-experienced users to efficiently achieve accurate results.  Using tools that will automatically prepare a financial statement or standard report with a minimal amount of customization or user interaction can pay big benefits.   

A separate Caseware product, Caseware Financials, provides predefined statements that meet industry, regulatory and internal standards and they cut engagement time by creating high quality statements without having to perform word processing functions.   Caseware provides the Caseware Connector tool that provides specialized tool bars in Word and Excel to make it easier to link Caseware information into these applications.  Another useful feature is a “word level compare’ function that can used to show the differences in two versions of a document.  If your firm uses MS Word-based guidance tools and checklists, this feature lets you take an edited document and compare it to a standard document and identify the differences.  It is then an easy task to keep or edit differences as needed.   

Caseware improves the efficiency of the engagement process in several ways.  First of all, from a data access standpoint, Caseware supports the signing in and out of documents to allow collaboration on engagements by a many team members as required.  A “Tracker” utility manages Caseware working papers stored in different locations and synchronizes changes as needed.  To facilitate the efficient creation, review, and resolution of issues that arise on an engagement, Caseware allows users to easily document the issue.  Then an “Issues Viewer” provides a view of all identified issues and shows their priority, subject, and assignment.  This makes it easier to act on engagement problems with minimum effort. 

The Caseware index organizes the engagement working papers and has document control and management capabilities.  Any type of electronic file can be stored in Caseware and documents can be directly scanned into Caseware.  This eliminates the need to scan outside of the workpaper tool and then import the scanned document.  TIFF, GIF, JPEG, and PDF images stored in Caseware can be viewed via an internal viewer rather than having to open a separate viewing tool.  Outlook email messages, calendar items, contact information, tasks, and notes can be dropped into Caseware.  This makes it easier to document important communications and to create calendars and lists of important engagement dates and tasks.

One of the evolving challenges for firms is implementing the controls needed to meet the new and emerging standards related to document and workpaper control and retention.  To meet these needs, Caseware has a document lockdown feature to help firms comply with the Public Company Accounting Oversight Board’s Auditing Standard 3 “Audit Documentation”.   

CCH
ProSystem fx Engagement (www.cch.com) is part of the CCH ProSystem fx suite of products. Engagement shares information with the tax preparation, research, document management, time and billing and professional guidance software tools in the CCH suite.  This suite approach should be carefully considered by firms.  It has the potential for delivering some important synergy by sharing info between many software tools.  However, vendors have been slow in delivering integration that makes a significant difference. 

CCH Engagement uses Microsoft Excel and Word as it primary tools for creating workpapers and reports.  This approach will be very familiar to accounting firm staff.  The Excel approach lets users paste links of ranges of information to group information in lead schedules, tax lines, workpapers, and other types of documents.  Another benefit of using Excel for building the trial balance is that information linked to other documents is automatically updated during the roll forward process.   

Financial statements, accountant’s reports, notes to the financial statements and other documents are created in CCH Engagement using Microsoft Excel and Word.  The CCH Dynalink / Quicklink feature is used to map trial balance information to financial statements and other documents.  Firms can achieve any type of formatting needed.  Use of standardized financial statements and documents will greatly speed up the setup process. 

Engagement uses a central file room / locale file room approach for managing Engagement binder information.  Documents are checked out of the central file room and worked on in the users local file room.  This approach provides a high degree of security, and document protection so there is managed collaboration on engagements.  A  Synchronization Queue reduces the effort needed to synchronized changes between the local and central file rooms.  An engagement binder can be checked out of the central file room and emailed to a user with a single click of the mouse.  This central / local file room approach does slow access to information subsequent to its completion. 

One of the significant benefits of using Engagement is the ability to organize and present electronic documents to promote an efficient workflow.  Engagement lets users scan directly into the engagement binder and to insert other workpapers such s tax returns, emails, etc.  You can insert tick marks and workpaper references into Word, Excel, and Adobe files.  This will allow users of the documents to quickly “jump” from one document to another by clicking on the linked workpaper reference.  Issues can be documented and accessed for additional comments and resolution.  Engagement is optimized to make use of dual monitors to allow the easy presentation of multiple documents simultaneously.  This makes for easier data creation, editing, and review.

Engagement provides several tools to provide a top-down look at information.  The Engagement Today screen shows user specific information about multiple Engagement Binders.  The Binder Snapshot and the Trial Balance Snapshot drill down to present statistical information, outstanding issues, and other diagnostic information about a specific binder. 

Creative Solutions
Engagement CS from Creative Solutions (www.creativesolutions.thomson.com)

Is touted as a “completely paperless engagement process” and it lives up to this claim.  Engagement CS is part of the Thompson suite of applications and combines trial balance, professional guidance engagement collaboration (PPC), engagement workflow, and integration with other applications to support the business process of performing financial statement and tax engagements.   

Engagement CS has an intuitive layout, uses Word and Excel for reporting tools, and features extensive integration with other elements of the Creative Solution’s suite.  This helps offset some of the complexity inherent with an engagement application, but firms will benefit by training firm members on their firm’s standard use of Engagement CS. 

Engagement CS is an excellent example of the benefits a highly integrated application suite can offer.  First of all, EM integrates with several other applications in the Creative Solution CS Professional Suite.  Depreciation journal entries can be imported form Fixed Asset CS.  Adjusted balance information can be linked to UltraTax CS and GoSystem Tax to seamlessly transfer tax information.  Another important integration area is with the PPC e-Tools authoritative guides and practice aids.  This integration allows the user to access the guidance tools from within Engagement CS and avoids the need to open and login to another application.  By putting users in closer proximity to the information needed in the work process, efficiency is improved substantially.  Engagement CS also integrates with the RIA Checkpoint system for specific guidance on accounting, tax, and practice development topics. 

Engagement Manager has very flexible trial balance features.  Conceptually, the Engagement CS trail balance is a ‘’grid” that can be easily modified to present the columns and rows of data that will best fit the task at hand.  A split screen presentation shows both the broad groupings of information (classifications, lead schedules, etc.) and the detailed accounts at the same time.  Another efficiency feature allows the creation of journal entries on the same screen as the trial balance information so the user can immediately see the impact as journal entries are created.   

Engagement CS has two approaches for preparing financial statements.  Financial statements can be treated like any other Engagement CS workpaper using Microsoft Word and Excel to create them based on lead schedule, groups, account and other information or alternately, use the Engagement CS report writing tool that includes 48 template reports.  Budget Journal Entries are available for compliance with GASB pronouncements 34 and 35. Financial statement bases can be switched between accrual, tax, book, cash and other bases of accounting. Accounts can be assigned to five different groupings for lead, report and workpaper preparation.  A separate module is available as well; Financial Analysis, CS that allows for benchmarking data with industry standards. 

Engagement CS uses a “master binder” approach that allows multiple staff to work in the system simultaneously.  Workpapers can be checked in and out of the master binder and a synchronization utility updates the information between information in the “client” data and the master binder.  In-field networking and collaboration is provided with a single mouse click using Colligo’s instant networking software for easier and more frequent collaboration. 

Sign-off and tick-mark features allow for the on-screen sign-off and annotation of workpapers and reviewer approvals.  Workpaper Diagnostic reports show the team member responsible for a workpaper and its status and a Notes Diagnostic Report provides information about reviewer notes and comments.  An Unsigned Program Step report searches the e-Tools engagement programs and lists engagement steps that have not been signed off as complete.  Finally, a Wrap Up Wizard creates a centralized snapshot of the important engagement information and can be used to clear or delete review points, handle potential journal entries, and finalize workpapers.   

Engagement CS will meet the needs of firms that want to move into an electronic engagement environment.  Engagement CS is most beneficial to those firms that purchase the suite of products from Creative Solutions, PPC, and RIA. 

Conclusion
When your firm looks at workpaper applications, focus on efficiency.  Spend time developing the organization structure, processes for setting up information, and review procedures.  Then, train firm members extensively and enforce compliance with the firm’s standards.  While it may be necessary to have different standards for different types of services, tight standardization will reduce the effort it takes to get new users up to speed, provide more uniform workpapers from job to job and reduce the amount of preparer and high-cost reviewer resources used. 

Efficiency can also be greatly increased by using the features that promote uniform workflow and engagement management.  Because there are no 3^rd party imposed standards and very little written about “best practices” in this area, every firm has a different approach to actually performing the financial statement // tax return engagement.  Accordingly vendors provide flexible tools to accommodate the different approaches firms take, but it is important that firm’s look for ways to standardize engagement and process management when ever possible. 

The following points are important in selecting a workpaper application or evaluating your firm’s use of its current tool: 

Ease of Use – In the context of a workpaper application, ease of use is a very relative term.  The work process of performing a financial or business tax engagement is complex.  Many steps, a lot of information, and multiple team members are involved in the process.  The tools required to perform these types of services in an electronic environment require planning, training, and constant review in order to be used in an effective and efficient manner. 

Data Import / Export / Integration - Using detailed information from a client’s system is a requirement of every financial statement and tax preparation engagement.  If it is easy to do, pulling the data electronically costs a lot less in resources that having it manually keyed.  Additionally, a package's features for using this information with other applications, either through an export process or by directly linking to other systems, has a lot of value. 

Trial Balance Features – creating, grouping, and adjusting a trial balance is the corner stone for creation of the financial statement, tax return and the documents that support these products.  Features that make it easy to create, review and edit the trial balance can make a substantial difference in efficiency.  

Financial Statement Preparation – In many firms, the creation, and formatting of financial statements is almost an art form.  The problem with this is that art has a high cost.  Systems that have features that promote the standardization and preparation of complete high-quality financial statements offer many firms an opportunity to greatly improve on their current processes in this area. 

Engagement Process Features – this is the big one.  Work flow technology is one of the hottest technology areas in today’s accounting firm.  An increased awareness of the benefits, possibilities combined with the critical resource shortages most firms face have gotten firms thinking about how to use technology tools to implement or modify existing processes to increase engagement efficiency. 

The workpaper applications from Caseware, CCH, and Creative Solutions have the mix of features that firms need to move to a paperless engagement process.  Additionally, firms should take in to consideration the impact of integration that the software suites that CCH and Creative Solutions are developing could potentially have on firm processes.   

Tom Davis is owner of Tom C. Davis, CPA, LLC and President of Knowledge Concepts, Inc. in Valdosta, GA.  Contact him at tdavis@tcdcpa.com and at 229.247.9801.

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