8

Trial Balance Working Paper Software

We made a few assumptions when writing this book, and one of them is that you already have your tax preparation software, so we do not need to spend time discussing it here. In a certain sense, we made the same assumption regarding trial balance software. However, we wanted to be sure to cover the niche category of trial balance work paper software that is used to manage the working paper files related to trial balance based engagements, that is, compilations, reviews, audits, and entity tax returns. There is not really a clearly defined name for this category of software, so we are going to use the term trial balance working paper software. We are covering this topic on the heels of the document management system (DMS) software discussion because you can make a credible argument that this is a form of document management software.

We will begin by explaining the nature of trial balance working paper software. The primary function is to serve as a trial balance software application with direct links to all the supporting digital working paper files, as well as to link directly into a financial statement reporting application and to transfer the trial balance data directly into the tax software. This application can be one of the most challenging to implement successfully because it requires you to redesign your workflows to be compatible with the design of the software. This is a good thing but can mean a lot of that ugly thing we call “change.” Although it may be a challenge to successfully deploy, on the flip side, it can be one of the best technology investments you can make because it has the potential to drive out several inefficiencies in your trial balance engagement processes. Firms that have committed to fully implement this software have reported reductions of more than 30 percent in the time it takes to complete a full engagement cycle. That is substantial! Unfortunately, our experience has been that many firms struggle to fully implement the software as it was intended to be used and, therefore, end up with a hybrid approach that results in little or no efficiency gains. So the point you should take away from this is if you are going to make the investment, then you need to make the commitment to fully implement it.

Figure 8-1: Trial Balance Working Paper Software Features

Features Review

Let’s examine each of the components of this software (as shown in preceding figure 8-1) so that you will have a better appreciation for all that it can do for your firm. We describe each component in a generic sense. The actual approach to how each piece is implemented is what differentiates one vendor’s solution from another. That is why you need to do your research.

Trial Balance

This is the core feature of the application. It is a fairly typical trial balance (TB) application that reports on the TB from the unadjusted state to the adjusted TB, with columns to track the various journal entries. The TB is typically presented in a spreadsheet-like format with the option to view it in the various iterations, for example, tax basis, cash basis, and so forth. In fact, the TB component may be presented in an Excel worksheet format.

Journal Entries

This is the functionality that lets you record your various journal entries, such as adjusting, reclassifying, tax, cash basis, and so forth. In addition to having the ability to record extended explanations, there may be the ability to track approval and submission of all the entries. There will definitely be a link to the supporting working paper file or lead sheet, or both, whereby a journal entry impact will be presented on the working paper.

Financial Statements

There will be a direct link from the trial balance to the financial statement reporting tool. The obvious benefit is that whenever a change is made to the TB it is directly reflected in the financial statements. The key feature here is the ability to format the financial statements with as much flexibility as possible to meet your firm’s reporting style, while at the same time providing the appropriate level of structure to incorporate various checks and balances. Typical features include the ability to group accounts into a line item, create supporting detail schedules, full footnote disclosure, and the accountant’s letter. Some programs utilize Excel or Word as the financial reporting application with the appropriate links to the TB.

Working Paper Binder

This is the feature that really distinguishes this application from typical TB software—the ability to have a structured repository for all the files that support the TB, such as PDF files, e-mail messages, data files, Excel spreadsheets, Word documents, and so forth. The binder will include a referencing system to associate the working paper document with the appropriate accounts in the TB. This is where it can start to get a little fuzzy in terms of the relationship to the DMS. Many of these systems were designed before document management came onto the tax and accounting software scene. Therefore, there originally was no integration between the two applications. However, as the DMS and working paper software applications continue to evolve, we are starting to see a move toward leveraging the DMS as the working paper binder rather than having it as a stand-alone application.

Engagement Management

Another aspect of these engagements that complicates the application is that many trial balance engagements, particularly reviews and audits, are completed by a team working collaboratively on the engagement simultaneously. Therefore, the whole process of managing the access to working papers for editing and review is an important component. The check-out/check in features play an important role in controlling changes to the working papers. You will want to understand how this process works in each solution you evaluate.

Additional engagement management features include a structured working paper sign-off process that tracks preparer completion, reviewer approval, and so forth. The ability to lock down the working paper file at the completion of the engagement is also important in order to comply with the appropriate auditing standards.

Review Notes

This feature could have been discussed previously with the other engagement management features, but we feel it is important enough to stand on its own. One of the biggest challenges in moving to paperless workflows in a CPA firm is automating the working paper review process, as we discussed in the previous chapter. We do not need to cover that ground again here, but what you want to evaluate in a working paper system is the entire review note tracking and management process. Some of the specific features to focus on include categorizing review notes by type; stamping the date, time, and author; locking the note from edits; linking the note to a working paper or TB line item, or both; and the ability to purge selected notes and integration with e-mail to facilitate review note processing.

Tax Software Bridge

This is a very important feature for entity tax engagements because of the opportunity to streamline the process of moving the trial balance data directly into the tax software hands free. If you think this whole process through, you will realize that once you record a journal entry in the TB, the impact will flow directly to the financial statements, supporting schedules, tax return, and appropriate working papers. That is when you begin to realize the full potential of this application to streamline your workflows.

Accounting Software Bridge

This is a client side feature in that it allows you to import your client’s unadjusted trial balance data from his or her accounting system directly into the TB. The obvious benefit is another example of the hands-free transfer of data from one system to the next. Remember our discussion about the pyramid in chapter 1, “The Nature of the Digital Practice Model and the Benefits to You and Your Firm”? The key feature to look for here is to make sure the import function is compatible with the various accounting systems that your clients are using. This is actually less important than it used to be simply because most modern day accounting systems have the ability to export directly to a standard Excel file format or a comma separated values format. Either of these file formats can be imported by all the leading TB working paper software applications. You should also look for preformatted import templates for your client’s accounting systems and the ability to build your own templates. This will significantly minimize the time you need to spend completing the import process.

Solutions Overview

The array of software products for this application can be put into two categories:full featured and basic. If your firm has a substantial book of review and audit engagements, then you are most likely going to want to choose from the three market leaders: Caseware, Engagement CS (Thomson Reuters), and ProFx Engagement (CCH). We recommend that you take the time to thoroughly review each of these offerings by participating in a live webinar demonstration. There are distinct differences between them. If your practice is limited primarily to compilations and entity tax returns, you may be better advised to go with a simpler TB program that doesn’t have the depth of features as those listed previously. You don’t need to be constrained by the necessary structure those more sophisticated programs offer for a team approach to engagements. A simple TB program, such as Accountants World and many others in that market, will likely suit your needs.

There is one last point we would like to make on this topic. Due to the nature of the design of these programs to be used in a collaborative environment, with features like checking files in and out to support a mix of field work and in-firm activities, they need to have sophisticated features to facilitate and manage the distribution and collection of working paper files. As a result, there are more issues related to moving these applications to the cloud. Therefore, they are one of the last applications that we see being redeployed as cloud-based solutions. This is ironic because these applications can probably benefit the most from being deployed through the cloud because of their use in the field. So if you are intent on deploying this application through the cloud, be sure to do the appropriate level of due diligence and evaluate the vendor’s track record for leveraging the cloud.