This article is about audit working papers. Auditors should prepare and organise their working papers in a manner that helps the auditor carry out an appropriate audit service. The auditor should avoid preparing or accumulating unnecessary working papers, and should therefore avoid making extensive copies of the client’s accounting records. It is worth noting at this stage that it is neither necessary nor practicable for the auditor to document every matter considered during the audit.
Audit documentation needs to be understood for both Audit and Assurance (AA) and Advanced Audit and Assurance (AAA).
ISA 230, Audit Documentation states that the objective (1) of the auditor is to prepare documentation that provides:
The auditor should prepare the audit documentation on a timely basis and in such a way so as to enable an experienced auditor, having no previous connection with the audit, to understand:
In documenting the nature, timing, and extent of audit procedures performed, the auditor should record the identifying characteristics of the specific items or matters being tested.
The auditor should document discussions of significant matters with management and others on a timely basis.
If the auditor has identified information that contradicts or is inconsistent with the auditor’s final conclusion regarding a significant matter, the auditor should document how the auditor addressed the contradictions or inconsistency in forming the final conclusion.
Where, in exceptional circumstances, the auditor judges it necessary to depart from a basic principle or an essential procedure that is relevant in the circumstances of the audit, the auditor should document how the alternative audit procedures performed achieve the objective of the audit, and, unless otherwise clear, the reasons for the departure.
In documenting the nature, timing, and extent of audit procedures performed, the auditor must record:
The auditor should complete the assembly of the final audit file on a timely basis after the date of the auditor’s report.
After the assembly of the final audit file has been completed, the auditor should not delete or discard audit documentation before the end of its retention period.
When the auditor finds it necessary to modify existing audit documentation or add new audit documentation after the assembly of the final file has been completed, the auditor should, regardless of the nature of the modifications or additions, document:
When exceptional circumstances arise after the date of the auditor’s report that require the auditor to perform new or additional audit procedures, or that lead the auditor to reach new conclusions, the auditor should document:
The requirements of the ISA guide the auditor to produce audit documentation that is of an acceptable standard. Understanding and applying the requirements will protect the auditor from unwelcome and unnecessary litigation.
Working papers are important because they:
Before deciding to prepare a particular audit working paper, the auditor should be satisfied that it is:
Typically each audit working paper must be headed with the following information:
Certain working papers required by the auditor may have already been prepared by client staff. The auditor should make arrangements, whenever possible, for copies of these to be made available to the audit team. If client staff prepare working papers which are to be retained by the auditor, the auditor should agree the form of the working papers with client staff at an early stage in the audit, and include this information in the audit timetable.
When arranging for working papers to be prepared, the auditor should take care to ensure that the working papers will give all the information required. All such working papers should normally be clearly identified as having been prepared by the client. The member of audit staff directly responsible for an audit area in which working papers prepared by client staff are included should sign those papers – this will show that they have been checked and that they can be reviewed by the manager and the partner, and by subsequent reviewers. The signature of the audit team member indicates that the working paper (prepared by client staff) has been ‘audited’.
On the basis of the discussion above, a good working paper should meet the requirements of ISA 230 by displaying the following characteristics:
The reviewer of audit working papers should ensure that every paper has these characteristics. If any relevant characteristic is judged absent, then this should result in an audit review point (ie a comment by the reviewer directing the original preparer to rectify the fault on the working paper).
Working papers provide evidence that an effective, efficient, and economic audit has been carried out. They should therefore be prepared with care and skill. They should be sufficiently detailed and complete so that an auditor with no previous experience of that audit can understand the working papers in terms of the work completed, the conclusions reached, and the reasoning behind these conclusions.