![The understanding of internal control components obtained to plan the audit,
and the basis for conclusions about the assessed level of control risk required by
section 319, Consideration of Internal Control in a Financial Statement Audit,
paragraphs .61 and .83.
The notation in the working papers required by section 317, Illegal Acts by
Clients, if illegal acts are communicated orally to the audit committee or others
with equivalent authority and responsibility
The notation in the working papers required by section 380, Communication
With Audit Committees (if applicable), paragraph .03, if matters regarding the
scopeand results of the audit are communicated orally to the committee
The notation in the working papers required by section 316, Consideration of
Fraud in a Financial Statement Audit, paragraph .37, of the performance of the
assessment of the risk of material misstatement due to fraud and the auditor's
responseto the risk factors identified.
[Footnoterevised, May 2001, to reflect conforming changes necessary due to
the issuance of Statement on Auditing Standards No. 94.]
fn 3 However, there is no intention to imply that the auditor would be precluded
from supporting his report by other means in addition to working papers.
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AUDIT WORKING PAPERS -OWNERSHIP AND CUSTODY-PPT
- 1. AUDIT WORKING PAPERS: Audit working papers arethe outcomeofthedocumentationprocess.Working papers arethe record ofvarious audit proceduresperformed, auditevidence obtained, allocationof workbetween audit team members etc. Audit working papers arethe documents and evidencethat an auditor collects and retains with himself during the audit. Audit Working Papers: Audit working papers supportthe work that the auditor performs for providing assurance that he conducts the audit in accordancewith all the applicable standards on auditing (SA’s). They constitute all the audit evidence that an auditor obtains. Also, it contains various procedures that he applies to indicate that the audit is performed by him. The auditor and his audit team members prepare the audit working papers while performing the audit. Working papers are connecting link between the client’s records and audited financial statements. Working papers provide entity’s historical records as well as matters which should be taken care and given due importance while performing future audit’s of such entity. Audit working papers help auditor in audit planning and collecting evidence of the audit work performed on which his opinion is based.
- 2. Working papers helps auditor in allocating the time required for performing various audit procedures. The working paper helps auditor to maintain a record of various matters discussed with management while conducting an audit. Also, the working papers help audit team members to understand entity’s business, points which they need to check on a priority basis, queries and actions against them in previous audits. Working papers helps auditor in future cases to protect himself if the client files a suit against auditor for auditor’s negligence while conducting the audit. What are Audit Working Papers? Audit working papers are used to document the information gathered during an audit. They provide evidence that sufficient information was obtained by an auditor to support his or her opinion regarding the underlying financial statements. Working papers also provide evidence that an audit was properly planned and supervised. They should contain sufficient information for an auditor who did not work on an audit to discern the reasons for the opinion given regarding a client's financial statements. The forms of documentation that may be contained within the working papers include the following: Checklists of standard investigation items that were completed, and by whom Copies of correspondence Documentation of the assertions investigated and supporting evidence found Extracts from the corporate minutes of the client Flowcharts of a client's key transaction processes
- 3. Narrative discussions of issues found Organization charts Questionnaires for which the client provided answers Who Prepares Audit Working Papers? Audit working papers are prepared by the audit staff and audit seniors, and are reviewed by audit senior managers and partners. If a reviewer finds that any issues have not yet been addressed, then these issues are delegated to the on-site audit team for action. Reviewers sign and date each page examined. Once an audit has been concluded, the audit working papers are considered legal evidence, and so are appropriately indexed and filed. At a minimum, the working papers will likely be reviewed the next year by the assigned audit senior or manager, who will want to understand any issues found in the prior year, and also to determine if there are any ways to budget the audit staff's time more effectively. Working papers provide information on the following matters: Information about audit team members and work allocated to them. Information regarding unallocated work Whether he follows all the applicable standards on auditing (SA’s)or not He properly plans the audit or not Whether there was propersupervision over the work performed. Enabling the audit team members to be responsible for the work performed by them An auditor undertakes an appropriate review or not Whether the evidence is relevant, sufficient and appropriate to supportthe opinion of the auditor We can divide the working papers into two parts
- 4. Permanent audit file Current audit file A permanent audit file contains information which is of continuous interest and is relevant in future audits. Information like articles of association, loan agreements, leases, documents related to internal control of the entity, record of accounting policies followed by the entity on a continuous basis, significant observations of previous audits etc. Ownership and Custodyof Working Papers Working papers are those papers that contain essential facts about accounts so that the auditor may not have again to go over the accounts of his clients in case he wants to refer to them later on during the courseof his audit. The working papers are the matters documented by the auditor, and some states have statutes that assign the auditor as the holder of the working papers. The auditor’s privileges of ownership, however, are subject to moral limitations relating to the classified relationships with clients. Ensure safe custodyand secrecy of his working papers. Working papers belong to the auditor. The auditor’s ownership rights, however, are subject to constraints imposed by the auditor’s own profession. Rule 301 of the AICPA’S Codeof Professional Conductstipulates that a CPA shall not disclose any confidential information obtained during the courseof professional engagement, without the consentof the client, except for certain circumstances as stated in the rule. Custodyof the working papers rests with the auditor and he or she is responsible for their safekeeping. Working papers include in the permanent file
- 5. are retained indefinitely. Current working papers should be retained for as long as they are useful to the auditor in servicing a client or are needed to satisfy legal requirements for record retention. The statute of limitations rarely extends beyond 6 years. Working papers are the property of the auditor and he might, at his judgment, make portions of or extracts from his working papers to his client. Certain of the auditor’s working papers might sometimes serve as a helpful orientation source for his customer, but the working papers should not be regarded as a division of, or an alternative form, the client’s accounting records. Although the client might assert them as a record of his business matters, the auditor cannot division with them as his conclusions are based on them and as they present confirmation of the audit work carried out according to the essential principles. The auditor should acceptsensible actions for the safe supervision of his working papers and should maintain them for a time enough to meet the needs of his observations and to persuade any pertinent legal requirements of records preservation. AU Section 339A Working Papers 01.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 Functions and Nature of Working Papers
- 6. .02.Working papers serve mainly to—Provide the principal supportfor the auditor's report, including his representation regarding observance of the standards of field work, which is implicit in the reference in his report to generally accepted auditing standards. Aid the auditor in the conductand supervision of the audit. .03.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. .04.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. Content of Working Papers .05.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—
- 7. The work has been adequately planned and supervised, indicating observanceof the first standard of field work. A sufficient understanding of internal controlhas been obtained to plan the audit and to determine the nature, timing, and extent of tests to be performed. The audit evidence obtained, the auditing procedures applied, and the testing performed have provided sufficient competent evidential matter to afford a reasonable basis for an opinion, indicating observance of the third standard of field work. Ownership and Custodyof Working Papers .06.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. .07.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. .08.The auditor should adoptreasonable procedures for safe custodyof 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 .09.This section is effective for engagements beginning after May 31, 1982.
- 8. Footnotes (AU Section 339A — Working Papers): fn 1 This section amends section 230, Due Professional Care in the Performance of Work, paragraph .04, by deleting the second sentence of that paragraph. fn 2 This section does not modify the guidance in other Statements on Auditing Standards, including the following: The letter of audit inquiry to the client's lawyer required by section 337, Inquiry of a Client's Lawyer Concerning Litigation, Claims, and Assessments, paragraphs .08 and .09, or the documentation required by paragraph .10 when a responseto the audit inquiry letter is received in a conference The written representations from management required by section 333, Management Representations The notation in the working papers required by section 325, Communication of Internal ControlRelated Matters Noted in an Audit, paragraph .09, if conditions relating to internal controlobserved during an audit of financial statements are communicated orally to the audit committee or others with equivalent authority and responsibility The written audit program or set of written audit programs required by section 311, Planning and Supervision, paragraph .05 The representation letter from a successorauditor required by section 711, Filings Under Federal Securities Statutes, paragraph .11b, when an auditor has audited the financial statements for prior periods but has not audited the financial statements for the most recent audited period included in a registration statement
- 9. The understanding of internal control components obtained to plan the audit, and the basis for conclusions about the assessed level of control risk required by section 319, Consideration of Internal Control in a Financial Statement Audit, paragraphs .61 and .83. The notation in the working papers required by section 317, Illegal Acts by Clients, if illegal acts are communicated orally to the audit committee or others with equivalent authority and responsibility The notation in the working papers required by section 380, Communication With Audit Committees (if applicable), paragraph .03, if matters regarding the scopeand results of the audit are communicated orally to the committee The notation in the working papers required by section 316, Consideration of Fraud in a Financial Statement Audit, paragraph .37, of the performance of the assessment of the risk of material misstatement due to fraud and the auditor's responseto the risk factors identified. [Footnoterevised, May 2001, to reflect conforming changes necessary due to the issuance of Statement on Auditing Standards No. 94.] fn 3 However, there is no intention to imply that the auditor would be precluded from supporting his report by other means in addition to working papers. -------------------------------------------------------------------------------------