What are Audit working papers?

Audit working papers comprise of documents, records and information which the auditors comes across in the course of their audit. i.e. audit of the financial statements, internal management audits, information systems auditing and investigations. Audit working papers gather documents which records all audit evidence the auditor uses to have a reasonable basis of arriving and forming an opinion on the truth and fairness of an enterprise’s financial statements.

Advantages of Audit working papers

• It provides evidence of work done to support the audit opinion
• It assists in planning future audit
• It helps to organize the work done
• It facilitates review by managers and partners
• Audit working papers increase value for the audit by improving the efficiency, effectiveness and economy of an audit carried out.
• Audit working papers contains all evidence obtained and conclusions drawn for future reference
• It provides evidence of work done in case of litigation

Reasons for compiling audit working papers

• The preparation of audit working papers encourages the auditor to adapt a technical approach to his work.
• The audit reporting partner can only be reasonably satisfied that the delegated work has been satisfactorily performed by the review of the audit working papers
• Audit working papers provide for future references, details of work done and problems encountered during the audit to serve as a guide in planning subsequent year’s audit.

Qualities of a good audit working paper

For audit working papers to be considered sufficient for auditors to use as a reasonable basis for arriving and forming an opinion, they must have these qualities:

1. Timing: Audit working papers should be gathered as the audit progresses, not at the end of the audit or after the audit. This should be so in order to prevent valuable information from getting lost or being omitted.
2. Structuring: Audit working papers should be structured in a manner that would be easily understandable to independent reviewers or readers of the auditor’s logic and conclusions.
3. Problems encountered: The audit working papers should show details of problems encountered including matters of judgment and opinion during the course of an audit. Audit working papers should also show details of audit test and procedures so as to enable an independent reviewer deduce the reasonableness of the auditor’s conclusion in view of the problems encountered

1. Amount of detail: Audit working papers should be thorough and comprehensive enough in order to enable an experienced reviewer without any connection with the audit determine the extent of work done and conclusions reached.

Contents of audit working papers

The contents of audit working papers can be classified into:

1. Permanent audit file (PAF):
2. Current audit file (CAF)

• Permanent audit file forms the backbone of continuous audit for a client. Auditors keep a permanent working file for every audit client they have and the files contain information of continuing relevance to the client. The objective of compiling a permanent audit file is to assist the audit team to obtain a proper background knowledge of the client’s operations.

A permanent audit file may contain some of the following information

1. The memorandum and articles of association of the company
2. The organization’s name and history
3. The organization’s setup. Ie organizational chart
4. The major accounting policies
5. The organization’s accounting systems
6. Name and address of the company’s professional advisers.
7. Copies of statutes regulations governing the company’s operation , accounts and audit
8. Letter of engagement
9. List of directors and details of service contracts with them

Current audit file: current audit file is sort of temporary in nature, with information suited to be relevant for only the year under review which the auditor basis his opinion on, on an enterprises financial statements. The current audit file assists the auditor to have a reasonable basis of forming his independent opinion on the enterprise’s financial statements. A current audit file may contain some of the following information:

• A copy of the duly signed financial statements being audited and the trial balance.
• Audit planning memorandum
• Audit programmes
• Letter of weakness (management letter)
• Audit queries and their dispositions
• List of matters requiring the audit partner’s attention
• Letter of representation
• Extracts of minutes of meetings of the board and management and related correspondences
• Internal control questionnaires.

Recommended Reading 

O. Ray Whitting.,Wiley CPAexcel Exam Review: Auditing and Attesting