“The auditor should document matters which are important in providing evidence that the audit was carried out in accordance with the basic principles governing an audit”. Explain.

Auditing and Assurance Revision Questions and Answers

NSA 230 on “Audit Documentation” requires the auditor to prepare documentation that provides:

 A sufficient and appropriate record of the basis for the auditor‟s report; and

 Evidence that the audit was planned and performed in accordance with NSAs and applicable legal and regulatory requirements.
Working papers that are part of audit documentation are written records prepared / kept the auditor for:

 aiding in the planning and performance of the audit;

 aiding in the supervision and review of the audit work; and

 providing evidence of the audit work performed to support the auditor’s opinion.

Working papers should be designed and properly organized to meet the circumstances of each audit and the auditor’s needs in respect thereof. The standard organization of working papers improves the efficiency with which they are prepared and reviewed. It also facilitates the delegation of work while providing a means to control its quality. Working Papers should be sufficiently complete and detailed for an auditor to obtain on over-all understanding of the audit.

The working papers should record the audit plan, the nature, timing and extent of auditing procedures performed, and the conclusions drawn from the evidence obtained. The form and content of working papers are affected the nature of the engagement the form of the auditor’s report, the nature and complexity of the clients business, the nature and condition of the client’s records and degree of reliance on internal controls, the needs in particular circumstances for direction, supervision and review of work performed assistants.

Classification: Generally working papers are classified into permanent audit files and current audit files. A permanent audit file normally includes:

 Information concerning the legal and organizational structure of the entity. In the case of a company, this includes the Act and Regulations under which the corporation functions.

 Extracts or copies of important legal documents, agreements and minutes relevant to the audit.

 A record of the Study and evaluation of internal controls related to the accounting system. This might be in the form of narrative descriptions, questionnaires or flow charts or some combination thereof.

 Copies of audited financial statement for previous years.

 Analysis of significant ratios and trends.

 Copes of management letters issued the auditor, if any.

 Record of communication with the retiring auditor, if any, before acceptance of the appointment as auditor.

 Notes regarding significant accounting policies.

 Significant audit observations of earlier years.

The current files normally include:

 Correspondence relating to acceptance of annual reappointment.

 Extracts of important matters in the minutes of Board Meetings and General Meetings, as are relevant to the audit.

 Evidence of the planning process of the audit and audit programme.

 Analysis of transactions and balances.

 A record of the nature, timing and extent of auditing procedures performed and the results of such procedures.

 Evidence that the work performed assistants was supervised and reviewed.

 Copies of communications with other auditors, experts and other third parties.

 Copies of letters or notes concerning audit matters communicated to or discussed with client, including the terms of the engagement and material weaknesses in relevant internal controls.

 Letters of representation or confirmation received from the client.

 Conclusions reached the auditor concerning significant aspects of the audit, including the manner in which exceptions and unusual matters, if any disclosed the auditor’s procedures were resolved or treated.

 Copies of the financial information being reported on and the related audit reports.

Importance of Working Papers:

 It provides guidance to the audit staff with regard to the manner of checking the schedules.

 The auditor is able to fix responsibility on the staff member who signs each schedule checked him.

 It acts as an evidence in the court of law when a charge of negligence is brought against the auditor.

 It acts as the process of planning for the auditor. So that he can estimate the time that may be required for checking of the schedules.

Ownership: Working papers are the property of the auditor. The auditor should adopt reasonable procedures for custody and confidentiality of his working papers and should retain them for a period of time sufficient to meet the need of his practice and satisfy any pertinent legal or professional requirements of records retention. As per NSQC-1, retention period for audit engagements ordinarily is no shorter than five years from the date of the auditor‟s report, or, if later, the date of the group auditor‟s report

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