Audit Working Papers

What is Working Papers?

SA 230 on “Documentation” refers to working papers prepared or obtained by the auditor & retained by him in connection with the performance of his audit. The audit working paper constitutes the link between the auditor’s report & the client’s records.

Working paper should record the audit plans. The nature, timing & extent of auditing procedures performed & the conclusions drawn from the evidence obtained. The working papers should provide for

• Means of controlling current audit work.
• Supervision & review of the audit work.
• Evidence of audit work performed to support the auditor’s opinion.

Working papers should also prove the evidence of work performed in case of charge of negligence brought against the auditors.

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Importance of Working Papers

The audit working papers are of vital importance whether the audit is statutory, internal, or the management audit. Audit working papers are tool for accomplishing the purpose of audit.

Audit working papers record evidence gathered by the auditor which will help him in arriving at his conclusions. Also they act as support for work accomplished. Working papers are tool for accomplishing the purpose of audit.

The importance of working papers is as follows:

1. Provide evidence of the audit work performed to support the auditor’s opinion.
   
   
2. Aid in planning & performance of an audit.
   
   
3. Aid in the supervision & review of the audit work.
   
   
4. Record & demonstrate the audit work from one tear to another.
   
   
5. Plan the timing & extent of audit procedures to be performed.
   
   
6. Draw conclusions from the evidence obtained.
   
   
7. Standardize the working papers to improve the efficiency of the audit.
   
   
8. Facilitate the delegation of work as a means to control its quality.
   
   
9. Provide guidance to the audit staff with regard to the manner of checking schedules.
   
   
10. Fix responsibility on the staff members.
    
    
11. Act as evidence in Court of law when a charge of negligence is brought against the auditor.

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Elements of Audit Working Papers

The form & content of audit working papers may vary from one audit to other. If the auditor identified inconsistent information, the auditor shall document how the auditor addressed the inconsistency.

The form & content of audit working papers are affected by matters like:

• Nature of Engagement.
• Form of auditor’s report.
• Nature & complexity of the client’s business.
• Nature & condition of the client’s records.
• Degree of reliance on internal control.

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Lien on Working Papers

• Ownership: The working papers are the property of the Auditor. The Auditor may at his discretion, make portions of or extracts from his working papers available to his clients. The ownership of working papers belongs to the auditor. However he may make copies available to the client.
  
  
• Custody: The Auditor should take proper measures for custody & confidentiality of his working papers.
  
  
• Retention Period: The working papers should be retained for a period of time sufficient to meet the needs of his practice & satisfy any legal or professional requirement of record retention. Working papers should be requires to retain at least 7 years (earlier 10 years) from the date of auditor’s report.
  
  
• Lien: Lien arises only in case of other person’s property. Hence, the question of lien on the working papers does not arise since they belong to the auditor.

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Types of Audit Working Papers

1. Permanent Audit File
2. Current Audit File

The auditor shall assemble the audit documentation in an audit file & completed the administrative process of assembling the final audit file on a timely basis after the date of auditor’s report.

After the assembly, the auditor shall not delete audit documentation before the end of its retention period.

Permanent Audit File

They are updated with information regarding legal & organizational structure of the entity. This file contains all the papers & documents which have a long term use. They can be referred to on a repetitive engagement from year to year.

Contents of Permanent Audit File

Following types of working papers are kept & maintained in the permanent file

• Certified copies of the Memorandum of Association, Articles of Association in case of companies & Partnership Deed in the case of Partnership Firm.
  
  
• Extracts of minutes from the minute book of shareholders, directors.
  
  
• Copies of all the important agreements & contracts & other documents.
  
  
• Information about the company-
  • I. History of company
  • II. Location of various offices & factories & nature of business.
  • III. List of Executives & Officers & their duties. IV. Different departments & their functions.
    
    
• Details of holding & subsidiary company.
  
  
• A list of directors including:
  • I. Details of their other directorship
  • II. Details of other firms & companies in which they are directly or indirectly interested
  • III. Details of their membership of other companies or partnership firms or proprietary business or membership of other public bodies, trusts, etc.
    
    
• Information regarding internal control in the organization.
  
  
• A list of books of accounts & other registers.
  
  
• Compilation of tax returns & tax proceedings.
  
  
• Important details of cases filed by or against the client.
  
  
• Compilation of data of the balance sheet & profit & loss account &comparative statements.

Advantages of Permanent Audit File

• It is very convenient for easy reference. All important data is available in one file at one place.
• It enables to an auditor to prepare checklist of all the important items.
• It is a guide for the preparation of an audit programme.
• It acts as a reference book to seniors & other assistants who are fresh to the work.
• It helps in finalizing the annual accounts & auditor’s report. It also helps to review the work of the client.

Current Audit File

They contain information relating primarily to the audit of single period. All the papers which pertain to the year under audit are filed in current file.

Contents of Current Audit File

The current file normally contains all the papers that pertains to the year under audit. It includes the following

• The audit programme for the year.
• The internal control questionnaire issued to client & replies.
• Important adjustments or journal entries having a bearing on the final accounts.
• The working Trial balance.
• Bank reconciliation statements, all schedules, confirmation letters & replies.
• Audit notes.
• Record of work done.
• Schedule of depreciation, computation of tax liability, computation of dividend.
• Manuscript copies of current year’s final accounts together with all annexure.
• The manuscript working copy of the auditor’s report.