AUDIT WORKING PAPERS
AUDITING

AUDIT WORKING PAPERS | DEFINITION | OBJECTIVES | CONTENTS AND FILING


What is Audit Working Papers? An auditor has right to start audit work of a business. The load work is distributed among the audit staff. All audit clerks are allowed to examine the accounting statements and other records. They can collect information from the client. They can take notes from the books. The auditor can ask for copies of the memorandum of association, articles of association, agreements and minutes of meetings. An audit programme is prepared to control the pace of work. An audit notebook is written up to note ‘important information. A  schedule of debtors and investment is collected from the client. A certificate of stock taking can be reviewed. An auditor may write letters to bank, debtors, creditors, insurance companies, warehouse keepers and other customers for confirmation of dealing with the business. Ali such written papers are the basis of audit report. Audit staff files the papers. An index number is used for filing purpose. The cross index is helpful to note the movement of paper from one file to other. The working papers are the property of an auditor. He has right to hold and own these papers for years.

DEFINITION OF AUDIT WORKING PAPERS       

  1. Leo Herbert says that working papers are the records of the information that has been obtained and of the evidence on the audit objectives that have been gathered and analyzed during the audit.
    2. Howard F. Settler says that the auditor’s working papers are the vehicle for assembling the extensive and varied evidence that is
    gathered to support the auditors’ opinion.
    3. W. Johnson says that audit working papers are the written private materials, which an auditor prepares for each audit They described the accounting information, which he received from his client, the methods of examination used, the conclusions (and the reason thereof) and the financial statements.

OBJECTIVES OF WORKING PAPERS

1. PREPARE RECORD: The purpose of audit working papers is to prepare written record as a proof of audit work done. Audit staff keeps audit working papers so long these are needed for future use such record is the property of an auditor. He can keep it as long as he thinks necessary.

2. INTERNAL CONTROL: The purpose of audit working papers is to note the effectiveness of internal Control system. The auditor can decide to   start test audit or thorough checking. The work of auditor is lessened  due to proper internal control. He can apply sampling technique to do the work. In case of poor control there is a need of cent per cent  checking.
3. HELPFUL TO AUDIT STAFF: The audit working papers are helpful to  audit staff. The detailed instructions are issued to audit clerks. They can come to know about their duties. There is no need of further communication. The audit work is completed in time.
4. ASSESSMENT OF INTERNAL AUDIT: The audit working papers are  used to assess the effectiveness of internal audit. The internal auditor  submits audit report about performance of business. The auditor can examine internal audit report to see the quality of internal audit.
5. AUDIT OPINION: The audit working papers are the basis of audit opinion about business performance. The management can perform many types  of functions. The financial aspect of every function is examined. Audit opinion is reflected in audit report.
6. APPLICATION OF RULES: The auditor can see that rules about books  of accounts have been applied. The working papers are helpful in this regard. The government prepares rules for keeping books of accounts.
7. TAX ASSESSMENT: The assessment of income tax is possible through audit working papers. The amount of income is multiplied with rate of income tax to determine tax liability. The tax deducted at source is recorded and net liability is determined.
8. LOCATION OF LOST DATA: The audit working papers are used for location of lost data. The accounting facts and figures are recorded in working papers. In case of loss of data the working papers provide   figures to find out the missing figure.
9. SUBSEQUENT AUDIT: Audit working papers are essential for subsequent audits. Such papers provide guideline for subsequent   audits. The results drawn can be used to improve audit of accounts.
10. COURT CASES: Audit working papers are helpful to protect the rights of auditor in court of law. Any party can file suit for negligence of duty Of auditor. The working papers serve as basis of work performed by an auditor.
11. AUDIT REPORT: The auditor gets help from audit working papers in preparing audit report. The preparation of working papers is record making phase. The information collected from various sources is recorded and filed. These papers disclose information for preparing report.

12. DECISION-MAKING: The most important task of management is decision-making. The audit working papers provide reliable information: The decisions made on the basis of such information are useful for
13. EVALUATION: The audit working papers help managers to evaluate the performance of their sub-ordinates. The deficiencies can be removed to make it effective for the next time. The quality of work can be measured.
14. TRAINING OF STAFF: The audit working papers can help the new audit clerks. They can see the working of senior auditors. They collect and   prepare papers. It is practical training of some audit staff members.
15. WORK TRANSFER: purpose of audit working papers may be to  note transfer of work from one person to another. The fact is recorded on the auditor working papers. The new audit clerk assumes his  responsibility for completing the remaining audit work.
16.  RECORD FOR NEGLIGENCE: The purpose of audit working papers is to determine the efficiency or inefficiency of audit staff The audit clerks who complete their work in time they are efficient. The persons who fail  to complete their work are responsible for negligence.
17. FUTURE PLAN: The purpose of audit working papers is to prepare plan  for future the auditor can determine the effectiveness of data collected   through working papers. The changes in working papers are possible in the light of audit experience. The auditor can determine the way of  collecting data for future audits.
18. OLD POINTS: The purpose of audit working papers is to note that the  management has settled old points of audit. If the weakness of previous audit continues. from year to year, the auditor can state this point in audit report.

CONTENTS OF WORKING PAPERS

1. CONTRACT LETTER: The working papers contain the contract letter. This letter gives right to a person to start the work of audit. It states the terms and conditions of appointment of an auditor. The nature and amount of work is recorded. This letter becomes a part of audit working papers.
2. AUDIT PROGRAMME: An audit programme is a detailed plan of action to be used for audit. It is a timetable of staff duties. The books to be examined are stated in audit programme. Every audit work requires programme and then master audit programme is prepared to cover all activities.
3.  AUDIT NOTE BOOK: The audit notebook is a part of audit working papers. It contains useful information about business enterprise. This book provides data for audit report. The weak point tike missing   vouchers and unsettled queries are stated in it.
4. COPIES OF DOCUMENTS: The copies of various documents are included in audit working papers. The partnership deed, articles of association, memorandum of association, trust deed, and lease contract are collected from the management. These papers are useful to determine performance of business.
5.  COPIES OF CORRESPONDENCE: The copies of correspondence become part of audit working papers. The auditor can write letters to other parties. The replies can be received from debtors’ and creditors. Auditor keeps letters exchanged with other people.
6.  SCHEDULE OF DEBTORS: The clients provide schedule of debtors. This list is compared with books of accounts. The auditor can confirm balances from debtors. He can write letters to debtors for this purpose.
7.  STOCK CERTIFICATES: The management provides stock certificate. The auditor can watch the stock taking process. When stock is lying in public warehouse, the auditor can accept certificate of warehouse keeper.
8. COPIES OF PREVIOUS AUDIT: The auditor can collect copies of  previous audit reports. These papers become part of audit working papers. The auditor can note weakness stated in old reports. He can   examine that same points are not repeated in books of current year.
9. RESOLUTION COPIES: The auditors collect copies of resolutions. The decisions of management should be implemented in preparing books of accounts. The auditor can confirm whether such decisions are implemented or not.
10. DEPRECIATION: Audit working papers contains particulars of depreciation. The rate of depreciation is applied throughout the life of an asset. Reasonable amount of depreciation is charged every year. The auditor can determine exact amount of depreciation.
11.  INVESTMENTS: The management can buy shares and certificates of other companies. Investment can be made through brokers. The register of investment provides relevant information. The details of investment are recorded in working papers.
12.  MANAGEMENT CERTIFICATE: Management can provide various certificates to auditor. The certificate may relate to inventory valuation and similar other matters. Such certificate becomes part of audit working papers. The auditor can rely on certificates for audit purpose.
13.  DETAILS OF QUESTIONS: The auditor can ask number of questions to the management. The detail of questions is recorded in working papers. The questions not properly answered are included in audit report. The queries settled are dropped from working papers.
14. OTHER PAPERS: The auditor can collect information from experts like engineers, advocates and other consultants. These papers furnish valuable information about financial matters. The working papers may contain such papers.

FILING OF WORKING PAPERS

The audit working papers are divided into two parts. The first group consists of the current file and second group contains permanent file. The material relating to current year only is placed in current file. The data to be used for a number of years is placed in permanent file. The auditor can rely on the facts and figures recorded in permanent files.

CURRENT FILE

1. AUDIT PLANNING: The auditor makes planning for conduct of   audit. He can make arrangements with clients. He can plan his activities for completion of audit in time.
2. FINANCIAL STATEMENTS: The auditor can collect copy of financial statements from the client. The statements may include income statement, balance sheet and cash flow statement.
3. INTERNAL CONTROL: The auditor can check the effectiveness of internal control. It is procedure adopted by management for   proper working of business as per policies of business.
4. TRIAL BALANCE: The auditor can collect a copy of trial balance to note the important balances and to check the accuracy of accounting records.
5. AUDIT PROGRAMME: The auditor prepares audit programme for conduct of audit. It is list of work to be done during course of audit. A master programme is prepared on the basis of individual programmes.
6. AUDIT QUERIES: The auditor can keep a record of all queries made by audit staff. The accounting entries may not be self-explanatory. The management may fair to provide satisfactory answer to the questions made.
7. SUPPORTING SCHEDULE: The auditor can keep the record of supporting schedules. The information recorded in the schedule can be compared with entries in the books of accounts. The responsible officer must sign such schedule.
8. MINUTES OF MEETINGS: There is need of minutes of meeting for audit. The auditor can see whether decisions made by management have been implemented or not. The resolution passed at the meetings can be put. into practice.
9. MISSING VOUCHERS: The auditor can note the missing   vouchers. The-transactions are recorded on the basis of vouchers. The transactions without vouchers are not acceptable. The management is responsible for such transactions.
10. ANALYTICAL REVIEW: The auditor should make analytical review of accounting ratios and other financial matters. The analysis of ratios provides an insight into the unusual items appearing in the books.
11. AUDIT REVIEW: The auditor can review audit programme and procedure. He can note the good and weak points. He can take   steps to improve the audit for next years.
12. BANK RECONCILIATION: The auditor can collect copy of bank reconciliation prepared by management. He can examine that there is no error or fraud on the part of accounting staff or bank  employees.
13. TAX SHEETS: The auditor can collect copy of tax sheets. The  figures recorded in tax sheets are record of the current year. In case of need it can be used to draw conclusion about business matters.

PERMANENT FILE

14. BUSINESS HISTORY: The date of start of business is recorded.  The nature of business and types of products is stated. The share   in market may be noted. This information is helpful for audit purpose.
15. BUSINESS ADDRESS: The official address of business is necessary for the auditor. The name of building, street, city, and province must be recorded for incoming mail.
16. ORGANISATION CHART: The organization chart may be collected from management. The name and duties of all officers may be noted in order to check performance. This chart helps to understand the working of business:
17.  ENGAGEMENT LETTER: A copy of engagement letter can be kept on record for future reference. The terms and conditions Of appointment of auditor and scope of audit work are stated in it.
18. COPY OF DOCUMENTS: The auditor should collect copy of documents relating to business activities. The correspondence with various debtors and creditors may be made. The copy of such documents is useful for audit of books.
19. COPY OF CONTRACTS: The auditor can collect copy of contracts made by  managements for purchase and sale of goods and other assets: The checking of such contract is essential to note the terms and conditions.
20. ACCOUNTING SYSTEM: The auditor can note the system of accounting. The books, personnel and devices can be applied to  maintain record, A good system of accounting can produce reliable results for audit.
21. BUSINESS FINANCE: The auditor can record the details of capital  and loans. The owners’ funds and borrowed funds are used to finance business activities.
22. FIXED ASSETS: The auditor can record the book value of assets  and up to date depreciation. The performance of assets can be determined by means of, assets turnover rate. The unproductive  assets may be owned by the business.
23. FINANCIAL RATIOS: The auditor can determine financial ratios for every year. These ratios are useful to determine business performance. The auditor can keep such papers in permanent files for record.
24. BANKING ARRANGEMENTS: The auditor can note the banking arrangements. The deposits into the bank and withdrawal from the bank must be under proper safety measures.
25. PROFESSIONAL ADVISORS: The auditor can seek professional advice in various business matters. The name, qualification and address of the professional advisor may be noted in permanent files.