The auditor
should prepare and maintain working papers, the form and content of which should be designed to meet the circumstances of a particular engagement. fn 2 The information contained in working papers constitutes the principal record of the work that the auditor has done and the conclusions that he has reached concerning
significant matters. fn 3 Working papers serve mainly to— Working papers are records kept by the auditor of the procedures applied, the tests performed, the information obtained, and the pertinent conclusions reached in the engagement. Examples of working papers are audit programs, analyses,
memoranda, letters of confirmation and representation, abstracts of company documents, and schedules or commentaries prepared or obtained by the auditor. Working papers also may be in the form of data stored on tapes, films, or other media. Factors affecting the auditor's judgment about the quantity, type, and content of the working papers for a particular engagement include (a) the nature of the engagement, (b) the nature of the auditor's report,
(c) the nature of the financial statements, schedules, or other information on which the auditor is reporting, (d) the nature and condition of the client's records, (e) the assessed level of control risk, and (f) the needs in the particular circumstances for supervision and review of the work. The quantity,
type, and content of working papers vary with the circumstances (see paragraph .04), but they should be sufficient to show that the accounting records agree or reconcile with the financial statements or other information reported on and that the applicable standards of field work have been observed. Working papers ordinarily should include documentation showing that— Working papers are the property of the auditor, and some states have statutes that designate the auditor as the owner of the working papers. The auditor's rights of ownership, however, are subject to ethical limitations relating to the confidential relationship with clients. Certain of the auditor's working papers may sometimes serve as a
useful reference source for his client, but the working papers should not be regarded as a part of, or a substitute for, the client's accounting records. .08The auditor should adopt reasonable procedures for safe custody of his working papers and should retain them for a period sufficient to meet the needs of his practice and to satisfy any pertinent legal requirements of records retention. Effective Date.09This section is effective for engagements beginning after May 31, 1982. This article is about audit working papers. Auditors should prepare and organise their working papers in a manner that helps the auditor carry out an appropriate audit service. The auditor should avoid preparing or accumulating unnecessary working papers, and should therefore avoid making extensive copies of the client’s accounting records. It is worth noting at this stage that it is neither necessary nor practicable for the auditor to document every matter considered during the audit. Audit documentation needs to be understood for both Audit and Assurance (AA) and Advanced Audit and Assurance (AAA). The auditing standardsISA 230, Audit Documentation states that the objective (1) of the auditor is to prepare documentation that provides:
The auditor should prepare the audit documentation on a timely basis and in such a way so as to enable an experienced auditor, having no previous connection with the audit, to understand:
In documenting the nature, timing, and extent of audit procedures performed, the auditor should record the identifying characteristics of the specific items or matters being tested. The auditor should document discussions of significant matters with management and others on a timely basis. If the auditor has identified information that contradicts or is inconsistent with the auditor’s final conclusion regarding a significant matter, the auditor should document how the auditor addressed the contradictions or inconsistency in forming the final conclusion. Where, in exceptional circumstances, the auditor judges it necessary to depart from a basic principle or an essential procedure that is relevant in the circumstances of the audit, the auditor should document how the alternative audit procedures performed achieve the objective of the audit, and, unless otherwise clear, the reasons for the departure. In documenting the nature, timing, and extent of audit procedures performed, the auditor must record:
The auditor should complete the assembly of the final audit file on a timely basis after the date of the auditor’s report. After the assembly of the final audit file has been completed, the auditor should not delete or discard audit documentation before the end of its retention period. When the auditor finds it necessary to modify existing audit documentation or add new audit documentation after the assembly of the final file has been completed, the auditor should, regardless of the nature of the modifications or additions, document:
When exceptional circumstances arise after the date of the auditor’s report that require the auditor to perform new or additional audit procedures, or that lead the auditor to reach new conclusions, the auditor should document:
The requirements of the ISA guide the auditor to produce audit documentation that is of an acceptable standard. Understanding and applying the requirements will protect the auditor from unwelcome and unnecessary litigation. Importance of working papersWorking papers are important because they:
Avoiding unnecessary papersBefore deciding to prepare a particular audit working paper, the auditor should be satisfied that it is:
ContentTypically each audit working paper must be headed with the following information:
Papers prepared by clientCertain working papers required by the auditor may have already been prepared by client staff. The auditor should make arrangements, whenever possible, for copies of these to be made available to the audit team. If client staff prepare working papers which are to be retained by the auditor, the auditor should agree the form of the working papers with client staff at an early stage in the audit, and include this information in the audit timetable. When arranging for working papers to be prepared, the auditor should take care to ensure that the working papers will give all the information required. All such working papers should normally be clearly identified as having been prepared by the client. The member of audit staff directly responsible for an audit area in which working papers prepared by client staff are included should sign those papers – this will show that they have been checked and that they can be reviewed by the manager and the partner, and by subsequent reviewers. The signature of the audit team member indicates that the working paper (prepared by client staff) has been ‘audited’. Some characteristics of a good working paperOn the basis of the discussion above, a good working paper should meet the requirements of ISA 230 by displaying the following characteristics:
The reviewer of audit working papers should ensure that every paper has these characteristics. If any relevant characteristic is judged absent, then this should result in an audit review point (ie a comment by the reviewer directing the original preparer to rectify the fault on the working paper). ConclusionWorking papers provide evidence that an effective, efficient, and economic audit has been carried out. They should therefore be prepared with care and skill. They should be sufficiently detailed and complete so that an auditor with no previous experience of that audit can understand the working papers in terms of the work completed, the conclusions reached, and the reasoning behind these conclusions. Notes
What is included in a permanent audit file?The file may contain the following documents:. Accounting policies.. Articles of incorporation.. Bylaws.. Chart of accounts.. Director list.. History of the client organization.. Internal controls documentation.. Organization chart.. What records may be included in audit working papers?It includes information like financial statements and audit report of the entity, trial balance and worksheets, records regarding internal control risk of an entity, external confirmations received, queries of auditor and reply received from the management etc.
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