What does a working paper contain?

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Audit working papers record all audit evidence used to support the audit work done to assure that the relevant auditing standards performed the audit.

Let’s understand the importance, contents, characteristics, example, ownership, responsibility, protection, and preservation of audit working papers.

Audit working papers are the documents that record all audit evidence obtained during financial statements auditing, internal management auditing, information systems auditing, and investigations.

According to SAS 41, working papers are the records the auditor keeps of the procedures, the tests performed, the information obtained, and the pertinent conclusions reached in the engagement.

Working papers should include all the information the auditor considers necessary to conduct the audit adequately and support the audit report. Increasingly, working papers are maintained in computerized files.

Example of Audit Working Papers

Importance of Working Papers

Working papers are an essential part of every audit for effectively planning the audit, providing a record of the evidence accumulated and the results of the tests, deciding the proper type of audit report, and reviewing the work of assistants.

CPA firms establish their policies and approaches for working paper preparation to ensure these objectives are met.

High-quality CPA firms ensure that working papers are properly prepared and appropriate for the audit’s circumstances. Working papers are important because:

1. Working papers assist in the planning and performance of the audit.
2. Working papers are necessary for audit quality control purposes.
3. Working papers assure that the work delegated by the audit partner has been properly completed.
4. Working papers provide evidence that an effective audit has been carried out.
5. Working papers increase the economy, efficiency, and effectiveness of the audit.
6. Working papers contain sufficiently detailed and up-to-date facts which justify the reasonableness of the auditor’s conclusions.
7. Working papers retain a record of matters of continuing significance to future audits.
8. The preparation of the working papers is a means to give training to the audit clerks as to how to summarize the work done by them.
9. The working papers enable the auditor to point out to the client the weakness of the operation’s internal control system and the accountancy system’s inefficiency. Therefore, he may be in a position to advise his client on how to avoid such pitfalls.
10. The working papers enable the auditor to prepare the report to be issued without wasting time.
11. He can know that his assistants had followed his instructions.

Contents of Working Papers

Each audit working paper must be headed with the following information:

1. The name of the client.
2. The period covered by the audit.
3. The subject matter.
4. The file reference.
5. The initials (signature) of the member of staff who prepared the working paper and the date on which it was prepared.
6. In the case of audit papers prepared by client staff, the date the working papers were received, and the initials of the audit team member who carried out the audit work.
7. The initials of the member of staff who reviewed the working papers and the date on which the review was carried out.

Characteristics of Good Working Papers

Based on the discussion above, a good, working paper should meet the requirements of ISA 230 by displaying the following characteristics:

1. Working papers should contain all the essential information to be of maximum utility. Facts that are not important should be omitted.
2. It should state a clear audit objective, usually regarding an audit assertion (for example, ‘to ensure the completeness of trade creditors’).
3. It should fully state the year/period end (e.g., 31 October 2006) so that the working paper is not confused with documentation belonging to a different year/period.
4. It should state the full extent of the test (i.e., how many items were tested and how this number was determined). This will enable the preparer and subsequent reviewers to determine the sufficiency of the audit evidence provided by the working paper.
5. Where there is a necessary reference to another working paper, the full reference for that other working paper must be given. A statement that testing details can be found on ‘another working paper’ is insufficient.
6. The working paper should clearly and objectively state the test results without bias and based on documented facts.
7. The conclusions reached should be consistent with the results of the test and should be able to withstand independent scrutiny.
8. The working paper should be referenced to be filed appropriately and found easily when required later.
9. It should be signed by the person who prepares it so that queries can be directed to the appropriate person.
10. It should be signed and dated by any person who reviews it to meet the quality control requirements of the review.
11. The paper used for working papers should be of good quality so that it may not be damaged by frequent handling.
12. Paper used should be of convenient and uniform size.
13. Sufficient space should be left after each note so that any decision the auditor may take down in that space.

Ownership of Working Papers

The working papers prepared during the engagement, including those prepared by the client for the auditor, are the auditor’s property. The only time anyone else, including the client, has a legal right to examine the papers is when a court subpoenas them as legal evidence.

After the engagement, working papers and computer files are retained on the CPA’s premises for future reference. Many firms follow the practice of microfilming hard copy working papers after several years to reduce storage costs.

Responsibility, Protection, and Preservation of Working Papers

Whosoever has working papers should be responsible for their safe custody. They should, in no case, be shown to a third party except with the client’s permission.

After the audit report has been prepared and delivered to the client, these papers- may be filed and preserved for five to ten years or even more.

Definition: Working papers are informational reports prepared by accountants and auditors as supporting documents for formal reports and financial statements. In other words, working papers are reports prepared by accountants that summarize evidence found in client documents and are used by accountants to prepare financial statements.

What Does Working Papers Mean?

One of the most common forms of working papers is a worksheet. Worksheets are used to summarize year-end accounting processes, post adjusting journal entries, create trial balances, and prepare financial statements.

Other working papers are used to track and record client records for accounts receivable, fixed asset purchases, and liabilities. In most cases, accountant working papers are extremely detailed because the working papers represent the accountants’ findings and evidence in the engagement.

Example

Auditors must keep detailed work paper for every aspect of their audits. The Sarbanes Oxley Act of 2002 requires that auditors audit, test, and document not only the internal control structure of publicly traded entities but also the efficiency and effectiveness of the internal controls.

Accountants and auditors are required to retain their work papers for a number of years as evidence to base their audit and engagement findings on. These working papers are not only created by the accountants and auditors they are also the property of the accountants.

There have been many court cases of clients suing CPA firms to obtain the firms working papers. In most instances, the CPA firms retain the rights to their working papers except in the instance of legal fraud cases. Judges can subpoena CPA firms and require them to provide their working papers as evidence in fraud cases or auditor negligence cases.

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Audit working papers are the documents which record during the course of audit evidence obtained during financial statements auditing, internal management auditing, information systems auditing, and investigations. Audit working papers are used to support the audit work done in order to provide the assurance that the audit was performed in accordance with the relevant auditing standards. They show the audit was:

• Properly planned;
• Carried out properly
• There was adequate supervision;
• That the appropriate review was undertaken; and
• That the evidence is sufficient and appropriate to support the audit opinion

The Institute of Internal Auditors, a global professional audit standards body, has issued practice advisory 2330-1 stating the goals of audit working papers are to:[1]

• Document the planning, performance, and review of audit work;
• Provide the principal support for audit communication such as observations, conclusions, and the final report;
• Facilitate third-party reviews and re-performance requirements; and
• Provide a basis for evaluating the internal audit activity's quality control program.

The audit working paper are divided into two parts: The first group consists of the current file and second group contains the permanent file.

1. The material relating to the current year only is placed in current file
2. The data to be used for a number of years placed in permanent file. The auditor can rely on the facts and figures recorded in permanent files.

Audit working papers are the property of the auditor. In order to keep professional ethic, it cannot reveal to third parties without client consent unless limited specified situations mentioned in ISA 230 Documentation and required by law, the examples are court order, for public interest and so on.

The forms of documentation may be flowchart, manual, narrative note, checklist, or questionnaire.

Proper features or purpose :-

Features of Audit documentation are defined by related audit standards ie. IFRS,[2] USGAAP.[3] Following features might be considered as minimum:

• Reviewed by auditors with supervisors noted.
• Signed, dated and approved by relevant level of audit staff with sufficient cross reference.
• With evidence of effective audit planning, work done, sufficient and quality evidence.
• Outstanding matters are cleared in due course.

References

1. ^ "Producing Quality Workpapers". IIA. Archived from the original on 2014-04-07. Retrieved 2014-04-02.
2. ^ "INTERNATIONAL STANDARD ON AUDITING 230" (PDF). IFAC.
3. ^ "AU-C Section 230" (PDF). AICPA.

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