Audit working papers are documentation prepared and organized by the auditor to perform a proper audit service.
According to ISA 230, Audit Documentation, the auditor’s objective is to prepare documentation that can:
- Support as sufficient and appropriate basis in the auditor’s report.
- Prove that the audit has been planned and performed based on ISAs and relevant laws and regulations.
The audit working papers should be prepared on a timely basis and can allow an experienced auditor who has not been previously involved with the audit, to understand:
- The nature, extent, and timing of the audit procedures performed to comply with ISAs and relevant legal and regulatory requirements.
- The results of the audit steps and evidence obtained.
- Any significant matters arising during the audit, significant judgments made, and conclusions.
In the audit working papers, specific attributes of the items or subjects being tested should be recorded when documenting the nature, timing, and extent of audit procedures performed. Any discussions held with the management and others of material nature should also be noted down on a timely basis.
It is required that the audit working papers be kept until the end of its retention period, which is usually seven years from the issuance of the audit opinion.
When to prepare audit working papers?
The auditor should only decide to prepare a particular audit working paper when it is deemed necessary. It must either complement the auditor’s report in some way or provide the information needed for tax or other client-related statutory/regulatory purposes.
Another circumstance that renders the preparation of audit working papers necessary is when it is not practical for the auditor to make copies of documents that the client, including internal auditors, has created as part of their routine activities or for the client to prepare the working document. (However, an assessment needs to be made if auditors can rely on the work performed by them).
What should be included in audit working papers?
Each audit working paper needs to have the following information:
- Client’s name
- Period covered by the audit
- File reference
- Subject matter
- The initials or signatures of the audit team members who prepared and reviewed the working paper and the date on which it was prepared
- For working papers provided by the client, the date the working papers were received
Audit working papers prepared by the client
A lot of times, the client may have already prepared the audit working papers required. The audit team should attempt to obtain copies of these whenever possible. If the auditor needs to retain such working papers, it should be agreed upon upfront with the client regarding the form of the working papers and include this information in the audit timetable.
Besides, the auditor should ensure that the working papers will contain all the necessary information when arranging for the client’s working papers. In addition, all such working papers should be properly labeled as being prepared by the client.
The audit team member who is directly responsible for an audit section in which working papers prepared by the client are included should sign off the audit working papers.
This signature indicates that the working papers prepared by the client have been ‘audited.’ It also demonstrates that these working papers have been checked and are ready for review by the manager, partner, and any subsequent reviewers.
What constitutes a good audit working paper?
A good working paper should have the following features in compliance with the requirements of ISA 230:The year or period end (e.g., 31 December 20XX) should be identified so that the working paper will not be mistaken as documentation of a different year or period.
- The audit objective should be clearly stated, generally in terms of an audit assertion (e.g., to ensure the existence of cash and bank balances).
- The full extent of the test, i.e., the number of samples selected for testing and how this number was determined) should be stated. It will make it easier for the preparer and reviewers to determine the sufficiency of the audit evidence.
- The working paper should be clearly referenced to be filed appropriately and found easily when required later.
- The full reference of another working paper must be provided when such reference is necessary. Thus, simply stating that the evidence of test performed can be found on another working paper’ is not sufficient.
- The results of the test should be documented based on the facts and without bias.
- Conclusions reached must be included and should be consistent with the results of the test. In addition, a good conclusion must be able to withstand independent scrutiny.
- It should be signed off by the audit team members who prepare the working paper. This is to allow queries to be directed to the appropriate persons when necessary.
- It should also be signed off by the audit team members who review it to meet the quality control requirements…
If you are the reviewer, you must ensure that each working paper possesses the features above. If any important attribute is deemed missing, an audit review note, i.e., a comment, should be raised to the original preparer for him/her to rectify his/her mistakes on the working paper.
Why are audit working papers important?
Working papers are important because they: Give assurance that the work delegated by the audit partner has been properly done
- Provide evidence that an effective audit has been performed
- Boost the audit efficiency, effectiveness, and economy
- Are required for quality control purposes
- Have sufficiently precise and up-to-date factual data to support the reasonableness of the auditor’s conclusions
- Record significant matters that may also be significant to future audits
Why Audit Working Papers are Important?
Audit working papers are a critical component of the auditing process and play a significant role in ensuring the effectiveness and efficiency of an audit. These documents provide a detailed record of the audit procedures performed, the evidence gathered, and the conclusions reached during the engagement.
The importance of audit working papers can be attributed to several factors. First, they serve as a tool for the auditor to document the planning, execution, and evaluation of the audit engagement.
This documentation helps the auditor to maintain a comprehensive and structured record of the audit procedures performed, which is crucial in supporting the auditor’s conclusions and recommendations.
Second, audit working papers provide a basis for review by internal and external parties, such as audit committees, management, regulatory bodies, and external auditors.
The working papers can be used to demonstrate that the audit was performed per the applicable auditing standards and to provide evidence supporting the auditor’s findings and opinions.
Third, audit working papers serve as a reference tool for future audits. They provide a historical record of the audit engagement and can be used as a reference for subsequent audits.
This can ensure consistency in the audit approach, facilitate the identification of changes in the business environment, and assist in identifying potential audit risks and issues.
What is the limitation of the Audit Working Paper?
While audit working papers serve an essential role in the auditing process, there are limitations to their use that should be considered. Some of the limitations of audit working papers are:
- Limited usefulness for non-audit purposes: Audit working papers are designed to document the audit procedures and evidence gathered during an audit engagement. They may be less useful for non-audit purposes, such as for financial reporting, tax compliance, or legal proceedings.
- Reliance on the auditor’s judgment: Audit working papers are prepared by the auditor and rely on the auditor’s judgment in determining the extent and nature of the audit procedures to be performed and the evidence to be gathered. The working papers’ quality and reliability depend on the auditor’s professional competence, objectivity, and skepticism.
- Incomplete or inaccurate documentation: Despite efforts to prepare comprehensive and accurate working papers, there may be instances where the documentation needs to be completed or accurate due to factors such as time constraints, misinterpretation of evidence, or human error.
- Limitations of audit procedures and evidence: Audit procedures and evidence are subject to inherent limitations, such as the inability to test all transactions and balances and the possibility of management override or collusion. These limitations can affect the quality and completeness of the evidence obtained and documented in the working papers.
- Confidentiality concerns: Audit working papers may contain sensitive or confidential information, such as trade secrets or personal data, which must be protected from disclosure. However, there may be legal or regulatory requirements for disclosing certain information in the working papers, which can create challenges for auditors in maintaining confidentiality.
Summary
Working papers demonstrate that an audit has been performed. Therefore, they must be prepared with care and competence. They should be detailed and comprehensive enough to allow an experienced auditor with no prior knowledge of the audit to comprehend the working papers in terms of the work performed, the conclusions arrived at, and the justifications behind the conclusions.