What are Audit Working Papers?
Audit working papers include those papers and documents, which consist of details about accounts, which are under audit. They are the written, private materials, which an auditor prepares for each audit. They describe the accounting information, which he obtained from his client, the method of examination used, his conclusions and the financial statements.
Definition of Audit working papers
The Institute of Chartered Accountants of India insists on the preparation and keeping of adequate working papers. According to the Institute of Chartered Accounts of India,
“Working papers must include audit programme, queries, explanations given for the queries, schedules of important items like depreciation, inventories, confirmation from third parties, certificates issued by the management, banks, etc”
Thus, the standard requires an auditor to maintain adequate working paper. Working papers provide basic evidence of audit conducted in accordance with standard audit practices. They help the auditor in writing the report. The quality of audit work performed by the auditor can be judged by the character and contents of working papers prepared and maintained by the auditor.
According to Prof. Meigs,
“The term working papers is a comprehensive one and includes all the evidences gathered by the auditor to show the work he has done, the methods and procedures he has followed and the conclusions he has developed “.
From an analysis of above two definitions, it is clear that the working paper should specify
- How the work was planned and supervised?
- How the internal control system was reviewed and its reliability was assessed?
- How the evidence was collected and what procedures were adopted to collect the evidence?
- Whether the testing performed provided sufficient competent evidential matter to enable to form a reasonable basis for an opinion or recommendation?
Thus the working papers constitute a valid evidence of the work done in the current audit.
Importance of audit working papers
Working papers are necessary in all audit assignments. The Institute of Chartered Accountants in its Statement on Auditing Practices mentions,
“It is necessary to prepare and keep adequate working papers”.
Similarly, the Institute of Chartered Accountants of England and Wales suggests,
“Working papers are used to an auditor in controlling the current years audit work and planning the audit for next year”.
The third Standard of Field Work pronounced by the AICPA requires that the auditor should accumulate sufficient competent evidential matter on the financial statements.
From this it clear that there should be sufficient working papers to support independent auditor’s opinion. Apart from the basic objectives, the working papers serve the following objectives and provide several benefits.
Objectives of audit working papers
1. The working papers serve the auditor both as useful audit tool as well as a permanent record of the audit work performed.
2. They are useful to the auditor to control the current year’s audit work.
3. They constitute a reliable guidance for planning the future audit assignments.
4. A review of the audit working papers gives an assurance that the audit work is both accurate and complete.
5. The auditors arrange the data properly in the working papers. Hence, the data become more meaningful and useful for the purpose of the,audit.
6. Working papers are necessary to corroborate the work and the findings of all the audit staff.
7. The chief auditor is assured that the opinion is supported by the findings of their audit staff.
8. The working papers constitute complete and conclusive evidence in future as to the entirety and completeness of the audit work.
Contents of audit working papers
AAS 3 states working papers should record the auditor’s plan, the nature, timing and extent of the audit procedures performed; and the conclusions drawn from the evidence obtained.
Generally, audit working papers consist of the following details:
- Schedule of debtors and creditors.
- Trial Balance.
- Certificate of officials regarding certain important matters like bad debts, valuation of stock, unpaid expenses, accrued incomes, etc.
- Statement of depreciation.
- Correspondence between the auditor and the debtors, creditors, etc. of the client.
- Investment Schedules.
- Confirmation by the bank regarding the bank balances of the client.
- Bank Reconciliation Statement.
- Important extracts from the minute books such as agreement with vendors, hire purchasers, selling agents, etc.
- Detail of cash balance checked.
- Adjustment entries.
- Contingent liabilities certified by the management.
- Draft financial accounts.
- Details of clarifications made during the course of audit.
- A copy of the auditor’s book.
- Letters of representation.
- Correspondence from legal advisors
- Pertinent memoranda relating to the audit.
- Data relating to the review of internal control.
- Stock holder equity and the minutes.
- Test of transactions.