speed in the elements needed for the comparison; and the cost executive, on his part, should prove his ability as a manager by "getting the figures across" in time.

Nor should it be necessary to wait until the end of a month for all the cost news. It is true that overhead distributions and total manufacturing costs cannot be obtained until the data for the period which they cover are complete; but certain facts in every business, gathered primarily, perhaps, for the benefit of the cost department, may be charted as they occur and used by the factory management for current control of the operations. Direct labor, daily payrolls, comparison of piece and day work, bonus statistics, machine hours may be among these. The cost man is more than an accountant. He is the man at the periscope, the keeper of the navigation chart. He holds in his hands the veritable control of the company. Unfortunate, indeed, is that executive whose costs are figured by a man with a quill pen.

9. Finally, the cost system, being presumably not a work of fiction, must accord with facts. The general books with which the system balances may record facts or they may not. There is only one way to prove both the systems and the books: by actual, physical inventories. These should be taken often enough for safety, yet not so frequently as to interfere with the manufacturing operations. Agreement with such inventories is at once the final essential of a cost system and one of the proofs of its accuracy. Such, it is submitted, are the essentials of the ideal cost system. The manner of attainment will vary with the individual industry. In an article of this length, the subject of how to reach the results cannot even be approached. Certain it is, however, that they are all perfectly practicable. Nothing has been suggested that is not being done every day, in hundreds of wellestablished cost departments.

Now and then the accountant will be found who maintains that his industry is different; that the foregoing standards, though feasible in most factories, are impossible in his own-the peculiar nature of his product forbids. Perhaps he is correct; but it is well to examine the pen used by such a man, and to note what it is that protrudes from his hip pocket. It may be a flint chisel.

Audit Working Papers*

BY WILLIAM H. BELL

My remarks will be predicated to a large degree upon the idea that the principal is not to do the auditing work himself, or at least upon the necessity for some one to utilize the papers other than the accountant directly engaged upon the audit. With this assumption, it may be stated that the importance of the substance and form of working papers is threefold: first, to the accountant himself, not only in the audit procedure and the preparation of his report, but in answering questions that may later arise from any source; second, to the person or persons who review and check the report; and, third, to the accountant making a subsequent audit. I shall endeavor to avoid a discussion of methods of auditing, but the subjects are so closely related that it may be impossible to do so entirely.

There are two general tendencies regarding the data contained in working papers, viz., deficiency and superfluity. It is probable that the latter is more prevalent than the former, but the tendency to prepare superfluous working papers diminishes in direct ratio to an accountant's advance in proficiency as an auditor, that is, as he becomes more practical. Granting that an accountant charged with the preparation of working papers has the requisite knowledge of the principles of auditing, it should be almost unnecessary to tell him what to do, except as a means of facilitating his work, other than by telling him what not to do.

The most glaring examples of superfluous work or misdirected energy are mere transcripts of accounts or so-called analyses of accounts designed to classify the entries, which utterly fail to accomplish what might be written on one line. The principles actuating accountants in preparing such papers appear to be to obtain information, no matter how untrustworthy or unnecessary, and to check the mathematical accuracy of the accounts in that manner. Practically, they are often meaningless figures. Cases in point are analyses of reserves for depreciation without determination of the rates and the asset values constituting the

A paper presented at the tri-state meeting of accountants of Delaware, Maryland and Virginia at Baltimore, June 25, 1919.

bases for the credits and without information regarding the charges; elaborate tabulations of sales, cash receipts and disbursements, accounts receivable and payable controlling accounts, etc., the only practical benefit from which may usually be derived in a great deal less time by checking the footings and a few postings on the books; schedules of accounts receivable, unpaid vouchers, etc., prepared by the accountant, when the client's trial balances may usually be utilized to equal advantage.

On the other hand, it is well to recognize the aid to the memory in recording what is brought to the attention; also the fact that the act of writing may serve to impress upon the mind what might otherwise be overlooked. As an example of the application of the latter principle may be cited summaries of inventories. It is well known that the verification of computations of inventories becomes somewhat monotonous, and that therefore important factors may be overlooked if the accountant's attention is not abruptly arrested by means of writing a summary. I have in mind a case where an accountant overlooked erroneous additions and deductions in the summary of an inventory which were of considerable importance. I am confident that the facts would have been forced upon his attention by writing the items; if not, they would certainly have been disclosed to the accountant in charge of the work.

It may seem rudimentary, but is nevertheless important, that every letter and figure in working papers should be legible to others as well as to the accountant himself. In my search through papers for information elucidating some assertion in a report, I have even found memoranda in shorthand, which might as well be in Sanskrit for my use. This precaution regarding legibility applies particularly to names. If these are to be used in a report they should be typewritten if practicable; if not, they should be printed or written with great care. Abbreviations should not be used when there is any possibility of their being misunderstood.

I do not favor the use of ink in preparing working papers, believing that there are too many occasions for erasures and that there is no practical advantage to offset the additional time required.

Especially in large organizations, or where several accountants are engaged upon an audit, it is important that each paper

bear the initials or, if necessary, the full name of the person responsible therefor.

It is desirable that papers be of standard size, so that the larger sheets of analysis paper, when folded, will be uniform in size with the journal or memorandum paper. The principal advantage of this is that it is conducive to a more orderly condition of the files, but it also tends to obviate loss or misplacement. It would be ideal if all memoranda were made on sheets of standard size, but that ideal will hardly be attained. In fact, I prefer to sacrifice uniformity in size, if necessary, for the sake of preservation of all papers that can even remotely be regarded as having a future value. I have heard of a lawsuit being won through the preservation of a piece of scratch paper showing a multiplication. However, odd pieces of paper may be pasted or securely attached to standard size sheets, thus affording greater assurance of their being preserved.

It is important that only one side of the paper be used. Writing on the back of a sheet may easily be overlooked. Paper is cheap, even at present prices, as compared with the impairment of efficiency resulting from too great economy.

Each sheet should be headed with a terse description of what it purports to be, including the name of the engagement and, usually, the date or the period covered by the audit, to avoid possible confusion with other papers. When sheets are folded the same information should appear on the outside.

It is a matter of individual preference as to whether all papers shall be fastened together. I fail to see any advantage in it, excepting as to irregular size sheets, and believe that a judicious use of folders is better, especially considering the additional work of cutting or folding the larger sheets for the purpose of attaching them, and the greater facility of reference if they are loose.

It may not be amiss to refer to the color of paper to be used. In my opinion all paper used by accountants in their work should be buff to relieve eye-strain as much as possible.

During the early stages of the work the accountant should acquaint himself with the accounting system in use and the office personnel. Unless the client's organization is comparatively small, it is usually desirable to include in the working papers a list of the books and records that will be used in the audit, the names of the

persons keeping such records and of officers, etc., with whom the accountant or his assistants will come in contact, and such information as the names of persons authorized to approve vouchers, sign cheques, etc. This memorandum can also be utilized in conducting future audits.

When the accountant has progressed far enough in the work to formulate a comprehensive plan, he should prepare a work sheet or audit programme, or if it be the policy of his organization to use what may be called a stock form of programme, he should adapt it to the requirements of the particular engagement. One such programme may be made to cover several periodical audits if good judgment be exercised in giving effect to changing conditions. For this purpose a columnar sheet may be used, with the various details of work to be done listed down the left side and the columns headed, in pairs, with the dates of the respective periods to be covered. One of each pair may then be used for the initials of the person doing the work and the other for the date on which it was performed. When certain parts of the audit are limited to tests, such as the verification of vouchers, footings, sales invoices, postings, etc., the work sheet should show what periods or approximately what percentages of accounts, etc., were selected and examined. The word test is subject to much abuse unless properly safeguarded. It is often advantageous, also, to make a note on the work sheet of the time devoted to certain phases of the work. I do not advocate using the same work sheet for two periods as far apart as a year. However, I believe it is desirable for an accountant to familiarize himself with the work of the previous year, as a basis for his judgment regarding the work to be done, by reviewing all the working papers used at that time.

The basic working paper, the backbone of the working papers, is the general ledger trial balance. Virtually all other papers relate to the items shown on the trial balance. It is usually desirable for the accountant to draw off a trial balance himself. It should always be included in the working papers in any eventthat is, the client's trial balance book should not be checked and the statements prepared therefrom-and it has been my experience that time is seldom saved by utilizing the client's printed or typewritten form.