Audit working papers

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AUDIT NOTES

Audit working papers

  1. 1. AUDIT WORKING PAPERSWhat are Working Papers?Working Papers are the material that auditors prepare or obtain and retain inconnection with the performance of the audit. It may be in the form of datastored on paper, film, electronic media, or other media. They can also be used incourt e.g. in case of negligent audit.REASONS IN PREPARING WORKING PAPERS Basis for planning the audit Record the evidence accumulated and the results of the audit tests Data for determining the proper type of audit report Basis for review by supervisors and partners Evidence audit works being performed in accordance with approved auditing standardsPURPOSE OF AUDIT WORKING PAPERWorking papers are the evidence of work done by the auditor, he should prepareworking papers in order to provide evidence that audit was properly performedaccording to ISA standards. Working papers support auditor, in-case he is beingsued in court by the client, for negligence of audit work.Assist in the planning and performance of the audit.Assist in the supervision and review of audit work.Record the audit evidence resulting from the audit work performed tosupport the auditor’s opinion.Purposes Served By Work Papers1. Audit working papers serve four major purposes:A. They constitute a permanent record of the objectives and scope of the audit, as well as the work performed during the audit. Work papers organize and coordinate all phases of the audit.B. They contain the back-up material in support of the audit findings
  2. 2. conclusions, opinions, and comments.C. They contain the basic material from which the audit report is prepared.D. They reflect the quality and reliability of the work performed by the auditor and substantiates and explain in detail the opinions and findings presented to University management.2. Working papers have a number of additional uses both during and after the audit. These are to control audit progress by showing the auditor what audit procedures have been completed and what audit procedures have not been completed. Working papers also provide:A. A basis for study of patterns and trends.B. Aid in the internal audit staffs professional development.C. Detailed supporting material for use in discussion with operating personnel.D. A source of evidence in litigation and in administrative actions.E. A basis for supervisory review and evaluation of audit performance.F. A permanent record for use in planning and carrying out future audits.G. Demonstrate that auditors have complied with the Standards for theProfessional Practice of Internal AuditorsFUNCTION OF AUDIT WORKING PAPERHelpful in making genuine audit reportWorking papers are used for making genuine audit report. Without knowing thereality of different facts which are written in working papers, auditor cannotmake audit report which shows accurate view of companys financialstatements.Uses as evidence.Sometime, any party may behave like a neglect person, at that time, theseworking papers will become the evidence of reported facts.Direction to auditing procedure.Working papers are also good guide to direct the audit procedure. If auditorwants to do audit work step by step, he should collect all working papers whichare required for auditing and set it according to the steps of auditing. Doing this,auditing work may be easy.
  3. 3. Check the weakness of internal control.With the help of this tool, auditor can check the weak points of internal controland suggest improving it.CONTENTS OF AUDIT WORKING PAPERS.Each audit working paper must be headed with the following information: The name of the client. The period covered by the audit. The subject matter. The file reference. The initials (signature) of the member of staff who prepared the workingpaper, and the date on which it was prepared.1. CONTRACT LETTER:The working papers contain the contract letter. This letter gives right to a personto a start work of audit. It states the terms and conditional of appointment of anauditor. The nature and amount of work is recorded. This letter becomes a partof audit working papers.2. AUDIT PROGRAMME:An audit programme is a detailed plane of action to be used for audit. It is atime table of staff duties. The books to be examined are stated in auditprogramme. Every audit work requires programme and then master auditprogramme is prepared to cover all activities.3. AUDIT NOTE BOOK:The audit notebook is a part of audit working papers. It may be bound book orloose-leaf card form. It contains useful information about the businessenterprise. When audit report is drafted this book provides data for such report.The weak points like missing vouchers, queries not settle are stated in it.4. COPIES OF DOCUMENTS:The copies of various documents are included in audit working papers. The
  4. 4. partnership deed, article of association, memorandum of association, trust deed,lease contract and similar other papers are collected from the management.These papers are useful to determine the performance of business work.5. COPIES OF CRRESPONDENCE:The copies of correspondence become part of audit working papers. The auditorcan write letter to other parties. The replies can be received from debtors andcreditors. The audit staff must keep the exchange of letter between auditor andother people.6. SCHEDULE OF DEBTORS:The client provides the schedule of debtors. This list is compared with the booksof accounts. The auditors can confirm the balance from various debtors. Hecollects facts and figures by writing letters to the customers.7. STOCK CERTIFICATE:The stock certificate is received from the management. The auditor can watchthe stock taking process. When the stock is lying in public warehouse, thecertificate of warehouse keeper is accepted for audit.8. COPIES OF PREVIOUS AUDIT:The auditor can collect copies of previous audit reports. These papers becomepart of audit working papers. The auditor can note the weakness stated in theold report. He can examine that same points are not repeated in the books underreview.9. RESOLUTION COPIES:Auditor collects the copies of resolutions. These copies are part of workingpapers. These copiers are part of working papers. The decisions made by thedirectors and shareholders are implemented in preparing of books of accounts.The auditor can determine whether such decisions are implemented.10. DEPRECIATION:The audit working papers contains the particulars of depreciation. The rate ofdepreciation can be applied through out the life of an asset. The reasonableamount of depreciation can be charged every year. The auditor can determinethe exact amount of depreciation.
  5. 5. 11. INVESTMENTS:The management can buy and sell shares and debentures of different companies.The investment can be exchanged through brokers. The register of investmentsshall the purpose to collect various particulars relating to investments.12. MANAGEMENT CERTIFICATES:The management may provide certificates to the auditors. This certificatebecomes a part audit working papers. The certificates may relate to inventoryvaluation and similar other matters. The auditor can rely these certificates inpreparing audit report.13. DETAIL OF QUESTIONS:The auditor can ask the number of questions to the management. The details ofquestion asked are recorded in the audit working papers. The questions notproperly answered are included in the audit report. The queries settled may bedropped from the papers.Working Paper Format1. The diversity of audit assignment prevents the establishment of a singlesystem or design of working papers to be used. Therefore, a uniform workingpaper format may not be used but work papers for functional areas such as cashreceipts should display conformity in various types of audits.2. Work papers may be in the form of paper, tapes, disks, diskettes, films, etc.There should be backup copies of electronically generated working papers. Thebackup copies should not be stored with the original copies.Indexing the audit working papers essentially means preparing a Table ofContents. A well-organized set of working papers enables the auditor tounderstand the relationships of transactions and how they impact differentaccounts. It also enables the reviewers to perform their work more effectivelyand efficiently and to devote their attention to the critical audit areas.There are many different ways that working papers could be indexed. Theimportant consideration is that the organization and indexing be logical.
  6. 6. In the case of audit papers prepared by client staff, the date the workingpapers were received, and the initials of the audit team member who carried outthe audit work. The initials of the member of staff who reviewed the working papers and thedate which the review was carried out.Ownership of Working PapersThe working papers prepared during the engagement, including those preparedby the client for the auditor, are the property of the auditor. The only timeanyone else, including the client, has a legal right to examine the papers is whenthey are subpoenaed by a court as legal evidence.Ordinarily, working papers can be provided to someone else only with theexpress permission of the client. This is the case even if a CPA sells his practiceto another CPA firm.Working papers (confidential information) prepared during audit engagementare the property of the auditorsCan only be provided to third parties with express permission of the clientDISCOVER THE SYMBOLS USED IN AUDIT WORKING PAPERTick marks are symbols used by the auditor to indicate the nature and extent ofprocedures applied in specific circumstance. Tick marks are notations directlyon the working papers schedules. Tick marks are generally done by hand with apen or pencil alongside a specific item.Importance of working papers. Quality control purposes in respect of the audit. Assurance: that the work delegated by the audit partner has been properly completed. Evidence: that effective audit has been carried out. 3Es: increase the economy, efficiency, and effectiveness of the audit. Support auditor conclusion: contain sufficiently detailed and up to date facts which justify the reasonableness of the auditor’s conclusions. Future audits: retain a record of matters of continuing significance to future audits.
  7. 7. Importance of Working Papers1. Working papers are instruments vital to the successful accomplishment of allaudit assignments performed. The working papers provide documentedevidence of an examination and evaluation and provide a connecting linkbetween the work which is performed and the final audit report. Hence, theirimportance cannot be overly emphasized.2. To a major extent, every auditor is judged by his skill and ability in preparingworking papers. When working papers are prepared in good form with properattention to layout, design, and legibility, with complete headings, explanationsof sources, and verification of work performed, they create a feeling ofconfidence in the ability of the staff member. Working papers should alwaysconvey an impression of system and order and conscientious attention to detail,coupled with a clear distinction between the important and the trivial.3. Another test of good working papers occurs when it is necessary for one staff member to leave a partially completed assignment and turn it over to anotherstaff member. If the latter can proceed without confusion then the workingpapers have stood the critical test of being able to stand on their own.4. Every auditor will be expected to continuously strive for the higheststandards of excellence in the preparation of working papers.Review of working papers Hot review: WP prepared by an audit staff is reviewed by a more experienced staff during the course of the audit. Post audit review: the audit manager and partner review the audit file and the FS. Second partner review: applicable for large and complex audit. Cold review: a group of experienced staff form a team to review in detail the work performed by an audit team and ensuring that the audit has been conducted in accordance with the firm standard procedures.Confidentiality of working papers. Should not be made available to third parties without client consent. Appropriate procedures should be undertaken to maintain confidentiality and safe custody of working papers. Should be retained for a sufficient period of time to meet regulatory requirements.

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