audit working papers

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AUDIT WORKING PAPERS
ATTY. RHENEIR P. MORA, CPA
MANAGING PARTNER
R. P. MORA & CO.

2. Outline
 Purposes and Uses of Working
Papers
 Working Papers Includes
 Permanent File Index
 Current File Index
 Audit Documentation
 Matters Affecting the Form
& Content of Working Papers
 Types of Audit Evidence

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Purposes and Uses of
Working Papers
 Serve as basic tools to assist the auditor in the
conduct of the audit.
 Support the auditor’s opinion on the financial
statements.
 Substantiate the competence of the auditor’s
examination.
 Serve as guides in subsequent audits.
 Aid in giving advice on tax and business matters
 Provide a basis for evaluation of staff members’
performance.

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WORKING PAPERS
ORDINARILY INCLUDE:
 Information concerning the legal and
organizational structure of the entity.
 Extracts or copies of important legal
documents, agreements and minutes.
 Information concerning the industry,
economic environment and legislative
environment within which the entity
operates.

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 Evidence of the planning process including
audit programs and any changes thereto.
 Evidence of the auditor’s understanding of
the accounting and internal control
systems.
 Evidence of inherent and control risk
assessments and any revisions thereof.
 Evidence of the auditor’s consideration of
the work of internal auditing and
conclusions reached.
 Analyses of transactions and balances.

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 Analyses of significant ratios and trends.
 A record of the nature, timing and extent
of audit procedures performed and the
results of such procedures.
 Evidence that the work performed by
assistants was supervised and reviewed.
 An indication as to who performed the
audit procedures and when they were
performed.
 Details of procedures applied regarding
components of business whose financial
statements are audited by another auditor.

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 Copies of communications with other
auditors, experts and other third parties.
 Letters of representation received from the
entity.
 Conclusions reached by the auditor
concerning significant aspects of the audit,
including how exceptions and unusual
matters, if any, disclosed by the auditor’s
procedures were resolved or treated.
 Copies of the financial statements and
auditor’s report.

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Permanent File Index
I. Information About the Client’s Business
II. Internal Control System Documentation
III. Organization and Equity Capital
 Articles of Incorporation
 By-Laws
 Minutes or Resolution of
Continuing Interest

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Permanent File Index
(Cont.)
IV. Financing and Other Significant
Agreements and Contracts
 Bank and Other Financing Agreement
 Bond Indentures, Mortgages and Trust
Agreements
V. Other Information of Continuing
Relevance
 Certificates of Registration with Gov’t. or
Regulatory Bodies
 Tax Information

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Current Index File
I. Auditor’s Report, Financial Statements
and General Matters
II. Planning and Administration
PA Initial Planning Audit Program
PA1 Initial Planning Memorandum
III. Compliance Test Documentation

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Current Index File (Cont.)
IV. Substantive Tests
WORKING TRIAL BALANCES
AND ADJUSTMENTS
ST Substantive Test Program Summary
WBS Working Balance Sheet
WPL Working Profit and Loss
TB Trial Balance
AJE/RJE Summary of Adjusting/Reclassifying
Journal Entries
PJE Summary of Passed Journal Entries

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Current Index File (Cont.)
ASSETS (Single Capital Letters)
A Cash
B Trade Receivables
C Other Receivables
D Inventories
E Prepayments
F Investments
G Property, Plant and Equipment
H Deferred Charges
I Intangible Assets
J Other Assets

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Current Index File (Cont.)
LIABILITIES (Double Capital Letters)
AA Notes Payable and Bank Loans
BB Accounts Payable
CC Acceptances Payable and Related Accounts
DD Accrued Liabilities
EE Income Taxes
FF Other Current Liabilities
GG Long-Term Debt
HH Other Non-Current Liabilities
II Contingent Liabilities and Commitments
JJ Stockholders’, Partners’ or Proprietor’s Equity
KK Retained Earnings

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Current Index File (Cont.)
INCOME AND EXPENSES (Two-Digit Numbers)
10 Sales
20 Cost of Sales
30 Selling Expenses
40 Administrative Expenses
50 (60 or 70) Other Groupings of Expense
Accounts
80 Other Income or Expenses

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PSA 210
ON AUDIT DOCUMENTATION
Section 2.
The auditor should document matters which are
important in providing evidence to support the
audit opinion and evidence that the audit was
carried out in accordance with Philippine
Standards on Auditing.
Section 5.
The auditor should prepare working papers which
are sufficiently complete and detailed to provide
an overall understanding of the audit.

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Matters Affecting the Form and
Contents of Working Papers
 Nature of the engagement.
 Form of the auditor’s report.
 Nature and complexity of the business.
 Nature and condition of the entity’s accounting
and internal control systems.
 Need in the particular circumstances for
direction, supervision and review of work
performed by assistants.
 Specific audit methodology and technology used
in the course of the audit.

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Types of Audit Evidence
 Physical Examination
 Third-Party Statements or Confirmation
 Client Statements or Representations
 Authoritative Documentations
 Observation
 Clerical Accuracy
 Comparison & Data Relationships

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PHYSICAL EXAMINATION
Description Of General Auditing Procedures
COUNTING OF INVENTORY, CASH,
SECURITIES, UNMATURED
PROMISSORY NOTES
- To establish existence and, where
applicable, ownership and condition of
assets

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THIRD-PARTY STATEMENTS OR
CONFIRMATIONS
OBTAINING CONFIRMATION
DIRECTLY OR DETAILS OF
ACCOUNT BALANCES
- To verify validity and accuracy of balances
and other information with outside parties.

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CLIENT STATEMENTS OR
REPRESENTATIONS
OBTAINING CLIENTS
REPRESENTATION LETTER,
EXPLANATIONS TO MANY DIVERSE
QUESTIONS RAISED DURING THE
AUDIT
- To obtain knowledge and understanding
about the client and its circumstances.

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AUTHORITATIVE
DOCUMENTATION
EXAMINING (OR VOUCHING) PAID CHECKS,
VENDORS PRUCHASE ORDERS,
RECEIVING REPORTS, TITLES,
CONTRACTS AND OTHER
DOCUMENTARY MATERIALS.
- To verify the validity and propriety of accounting
treatment of transactions and account balances
and compliance with internal controls.

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OBSERVATION
OBSERVING THE TAKING OF
PHYSICAL INVENTORIES BY CLIENT
PERSONNEL OR THE ACTUAL
OPERATION OF INTERNAL
CONTROL
- To determine compliance with prescribed
procedures.

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CLERICAL ACCURACY
RECHECKING CLERICAL
DETERMINATION BY CLIENT
- To verify the accuracy of computations and
transfers of information made by client.

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COMPARISON AND DATA
RELATIONSHIPS
COMPARING CURRENT PERIOD
ACCOUNT BALANCES OR
OPERATING DATA WITH SIMILAR
INFORMATION FOR PRIOR PERIODS
AND INVESTIGATING UNUSUAL
DATA RELATIONSHIPS.
-To disclose and determine the reasons for
significant changes.

25. Working Paper
Organization Chart
Continuing
Audit
File
Current
Working
Paper File
Risk
Assessment
& Planning
Job
Administration
Work
Of
Others
Lead
Schedules
&
Substantive
Work
Financial
Reporting
Transaction
Processing
Cycles
Transaction
Processing
Cycles
Evidential Matter
(Test of Controls)
Assets
Liabilities
&
Equity
Profit
& Loss
Financial
Reporting
Working
Trial
Balances
Lead
Schedules
and
Substantive
Work
Lead
Schedules
Detail
Schedules
and
Memoranda
Account Level
Evidential Matter
(Substantive Testing)

26. Indexing
If there are two or more pages comprising a given schedule, the
pages are marked to indicate both the particular page and the
number of total pages (see B-5 above).
Detailed work of an account balance could be supported by
several tiers of supporting schedules using fractional indexing

27. 2003 2004 _
Balance Beginning of Year P130,089 P151,691
Write-offs ( 71,087) ( 62,439)
Provision 92,689 83,994_
Balance End of Year P151,691 P173,246
========= =========
Examples
ANAK NG JUETENG, INC.
Analysis of Reserved for Doubtful Accounts
Audit: 12-31-04
B-9
PBC
DETAIL OF CURRENT WRITE-OFF
Date Customer Amount _
4-21-04 Lion King P 25,081
4-29-04 Jose Pedal 5,377
5-18-04 Atty. Ong 17,341
5-20-04 Sec. Bunye – Original 10,093
Various amounts under P1,000 4,547_
2004 Write-Offs P 62,439
==========
Examined write-off form approved by the controller noting agreement of date, customer and amount all write-offs
over P1,000.
Accumulated write-offs under P1,000 from detail maintained by the credit manager noting agreement.
Traced to Prior Year Audit Working Papers noting agreement.
Footed by QCB & Co. and agrees.
1
1
2
2
B B

28. Examples
ANAK NG JUETENG, INC.
List of Outstanding Checks
Audit: 12-31-04
A-4
PBC
Amount _
P 991.90
15,000.00
2,001.03
12,576.13
2,790.29
1,745.75
8,941.86
49,810.73
15,439.75
4,989.51
5,533.64
P122,410.43
==========
Examined cancelled checks returned by bank together
with the December 2005 bank statement, noted in order.
Examined check register and noted that these were not
acknowledged received by the payee in December 2004.
Footed by QCB & Co. and agrees.
P25,962.90
=========
Reviewed the list of outstanding checks noting no unusual or
significant items except for & as discussed below.
NOTE 1>
A B
B
A Per review of the vendor invoices and receiving reports, this check is
for lumber and supplies purchased for the additions to the building
site. See extracts from the board of directors meeting minutes at XX
for further discussion.
B Per discussion with Gen. Garcia, Comptroller, these checks dated
12/30/04 were not released to the vendors until 1/2/05 as all
authorized check signers were on vacation. Based on the dates these
checks cleared the bank per our review on the January 2005 bank
statement, this explanation is reasonable. Thus the following
adjustment is proposed to properly state cash and accounts payable at
12/31/04:
PAJE <1>
Cash P25,962.90
Accounts Payable P25,962.90