Audit Working Papers are those papers which contain essential facts about accounts so that the auditor may not have again to go over the accounts of his client in case he wants to refer to them later on during the course of his audit, e.g.,
- Audit programme duly completed showing the nature of work, the extent of checking and the initials of the persons who have done that work.
- Working Trial Balance;
- The schedules of debtors and creditors, fixed assets, investments, etc;
- Correspondence between the auditor and the debtors, creditors, bank, etc;
- Certificate regarding the stock-in-trade, and its valuation;
- Certificate from the management that all the outstanding assets and liabilities have been included in the account, etc;
- Adjustments Journal entries;
- Abstract from minute books;
- Particular of investment;
- Particular of depreciation;
- Details of the queries made during the course of audit the explanations give.
Objects of Audit Working Papers
- Detail of work performed:
In order to support the auditor’s report these papers show in detail the work performed by the audit clerks.
- Efficiency of audit clerk:
To auditor can from an opinion about the efficiency of otherwise of the audit clerks.
- Permanent record:
As the working papers remain with the auditor, as we shall see later on, they are the permanent record and therefore, in case of any suit against him for negligence, he can defend himself on the basis of these Audit working papers.
- Training of audit clerk:
The preparation of the Audit working papers is a meant to give training to the audit clerks as to how to summarise the work done by them.
- Weakness of internal control:
The working papers enable the auditor to point out to the client the weaknesses of the internal control system in operation, and inefficiency of the accountancy system. He may, therefore be in a position to advise his client as to how to avoid such pitfalls.
- Helpful for next year:
The audit working papers help auditor to plan for the succeeding year.
- Save the time:
The audit working papers enable the auditor to prepare the report to be issued without much waste of time.
- Follow instructions:
He can know that his assistants had followed his instructions.
- Duplication or omission:
If changes and transfer of staff are very frequent and in case such Audit working papers exist the audit work can be assigned to others with minimum of dislocation with least possibility of duplication and omission of any work.
- Future audit:
Future audit work can be carried on in the same sequence on the basis of the previous Audit working papers.
- Documents not produced:
Items left outstanding during the previous year, eg., any document not produced, may be paid particular attention in the future.
Essentials of good Audit Working Papers
They should contain all the essential information so that they may be of maximum utility. Facts which are not important should be omitted.
- Organized and arranged
The working paper should be so arranged that one may not find any difficulty in locating a particular matter. If they are not properly arranged it will take lot of time in finding a particular fact while preparing the report.
The facts in the audit working papers should be set out clearly.
The facts stated should be readily apparent to the reader later on and should be fully self explanatory.
- Papers should be of good quality:
Paper used for audit working papers should be of good quality so that by frequent handling, it may not be damaged.
- Uniform size:
Paper used should be of convenient and uniform size.
- Arranged in a logical order:
Paper should be clearly fastened together, arranged in a logical order, properly and adequately referenced and the subject matter clearly marked on the top.
- Space should be left after each note:
Sufficient space should be left after each note so that nay decision taken by the auditor may be taken down in the space.
Responsibilities, Protection and Preservation of Audit Working Papers
Whosoever is in possession of Audit Working Papers should be responsible for their safe custody. They should in no case be shown to a third part except with permission of the client. After the Audit Reports has been prepared and delivered to the client, these papers may be filed and preserved for a period of five to ten year or even more..
Ownership of Audit Working Papers, Audit Note Book, etc.
A question arises as to who is the owner of these Audit Working Papers. The client claims that these Papers belong to him because the auditor acts as his agent in making such queries, entering is to correspondence with the debtors and creditors, etc. while on the other hand, etc., while on the other hand, the debtors and creditors etc. while on the other hand the auditor claims the ownership of the Audit Working Papers on the ground the such information has been collected by him for the purpose of discharging his duty. It is further argued that such Papers should not be handed over to the client even after he ceases to be the auditor of the concern.
These are the Papers which might come to the help of the auditor in future in case the client files a suit against the auditor for negligence, etc. the auditor will have no evidence in his possession to defend himself, after he hands over the papers to his client.
It is sometimes argued that as a matter of professional etiquette the out-going auditor should hand over these Working Papers to the in coming auditor, especially when his appointment has come to an end in amicable circumstances so that the latter may get help from such papers during the course of audit in future.
In any case, if the auditor has the slightest doubt or suspicion that fraud has been committee or facts have been concealed, he should refuse to part with such Papers even to his successor.
The question of lien in regard to the Audit Working Papers arose in the case of sockockinsky vs. Bright Grahm & co. (1938) in England. The question was whether the auditors had a right to retain the Audit Working Papers as if it were their own property even after the payment of the audit fee. The court gave judgment in favour of the auditors on the ground that they were independent contractors and not agents of the clients.
Again, in Chantry Mrtin & Co. vs. Martin (The Times, London: 15th July 1953), quoted by Spicer and Pegler, it was held that the Audit Working Papers prepared by an accountant for the purpose of producing balance sheet on behalf of a client for audit purposes belonged to the accountant and not to the client. The Court held on the other hand that the correspondence between and accountant and the Inland Revenue concerning a client’s taxation liabilities belonged to the client.
The Audit working papers are field for future reference. Certain matters may be of permanent importance and certain matters may relate to a single period of audit. Matters of permanent interest are filed in permanent file.
A permanent file, for instance may information concerning organizational form like memorandum of association/ articles of association in case of company client, partnership deeds in case of firm client, important minutes of meetings, review points of internal control system, accounting policies, audit and accounts reports of every preceding year. In current file matters concerning the audit of current (or single period of year) are filed.
For instance, the current file may include matters documented in regard to acceptance of reappointment, audit programmed of the year, important extract of audit notes concerning checking of transaction, balances event matters arising from communicating with or discussion with experts, third parties, client’s staff, representation of management on accounting matters, copy of financial statement and audit report of the relevant period under file.