What is an Audit Note Book?
During the course of audit the audit clerk experiences several difficulties. He cannot remember everything at all time. So he maintains a book with him in which he makes note of important points and queries, which he has to refer to the client’s staff or clarify with the chief auditor. Such a book is called Audit Note Book. It is an essential book used to note important points that shall be included in the Auditor’s report. It is a complete record of doubts and their clarification. It helps the auditor in his subsequent audits. It is also used as a guide to the other audit clerks.
To sum up audit note book is nothing but a dairy, maintained by the audit staff for the purpose of recording certain points which require further clarification, explanation and investigation. This book generally includes the errors found out during the course of audit, difficulties observed and doubtful queries of various accounting records, etc. This note book usually forms a part of the permanent audit file.
Audit note book is also called as a remembrance book. It contains all matters that come to the notice of the auditor in the course of audit. It also plays an important part in defending the auditors if any legal action is brought against them. Audit note book can be used as authentic evidence in support of the work done by them.
Audit note book may be in the form of a bound book or of a permanent file of the audit office. It may also be in the form of loose sheets where the auditor files these sheets subsequently according to the sequence of dates for the future reference.
Definition of Audit Note Book
E.L. Kohler formulated a detailed definition for the term. According to him,
“Audit note book is a record, used chiefly in recurring audits, containing data of work done and comments outside the regular subject matter of working papers. It generally contains such items as the audit programme, notations showing how sections of the audit are carried out during successive examinations, information needed for the auditor’s office and for staff administration, personnel assignment, time requirements and notations for use in succeeding examination”.
Contents of Audit Note Book
An audit notebook generally consists of the following information:
1. The nature of the business and summary of important documents relating to the constitution of the business such as Memorandum of Association, Articles of Association or Partnership Deed, etc.
2. A list of the books of accounts maintained.
3. Particulars as to the system of accounts followed and the system of internal check in force.
4. Names of principal officers, their duties and responsibilities.
5. Progress of audit work together with the dates on which the work was undertaken and completed.
6. Extracts from correspondence with different authorities.
7. Audit programme.
8. Allocation of work among different audit staff.
9. All queries which have not been clarified so far.
10. Lists of missing receipts, vouchers, bills, etc.
11. Any special point arising during the course of audit to which the attention of the auditor must be drawn.
12. Particulars of cash balances, investments, fixed deposits, and the reconciliation statements of principal bank accounts.
13. Extracts of the minutes and contracts affecting the accounts.
14. Record of audit work done with dates of commencement and of completion.
15. Particulars regarding the financial policies followed by the business.
16. All mistakes and errors discovered.
17. Points to be incorporated in the audit report.
18. Points, which need further explanations and clarifications.
19. All important matters for future reference at subsequent audits.
20. Information of permanent nature relating to the business and notes of all important technical transactions.
These matters are very useful in preparing the audit programmes for subsequent audits.
Importance of Audit Note Book
1. Audit note book shall be taken as reliable evidence even by the Court of law in case of dispute or if the auditor is charged with negligence.
2. It is useful for drawing the audit programmes.
Advantages of Audit Note Book
Some the advantages of audit note book are given below:
1. Audit note book enables the auditor to record important points, which arise during the course of his audit; otherwise he might forget these points.
2. An auditor can produce this book as a documentary evidence in a suit filed against him for negligence or misfeasance.
3. It facilitates the preparation of the audit report.
4. If the assistant in charge is changed before the completion of a particular work, it acts as a guide and makes the completion of balance work easier.
5. A credit note book makes the work of audit convenient because all the important details about audit can be recorded in this book and, as such, any change in the staff of the auditor does not disturb or dislocate the work of audit.
6. It can help in making an assessment of the work of audit clerks.
7. It provides a key to evaluate the efficiency of the audit staff.
Disadvantages of Audit Note Book
There are, however, certain disadvantages of audit note book. They are as follows:
1. Very often, it creates misunderstanding between the client staff and the audit staff.
2. If it is not properly and carefully prepared it cannot be used as evidence against the auditor for negligence.
3. It develops a fault finding attitude in the minds of the staff of the audit.
4. Audit staff has to depend too much upon the client’s staff for its preparation.