Definition:
Audit working papers refer to the documents prepared by or use by auditors as part of their works. Those documents include summarizing the client’s nature of the business, business process flow, audit program or procedure, documents or information obtained from the client, and audit testing documents.
Audit working papers are sometimes referred to as audit documents that are a very imported part of audit works. These documents are evidence that supports auditors to make their conclusion on the financial statements.
For example, the auditor has an engagement with the client to audit the financial statements. Before signing the audit engagement letter, the auditor must obtain some information about the client, do the client’s due diligence, and assess whether they should reject or accept the engagement.
In this case, if the engagement is readily signed, that means the assessment is already done and accepted.
The documents that auditors use to document the client nature of the business perform client due diligence and assessment are examples of audit working papers. And it is subject to proper file and maintenance by the auditor.
Audit working papers also include the words or excel files that auditors used to document the client’s key internal control over financial reporting, nature of the business, and audit test’s working paper.
In general, audit working papers are obtained or prepared by audit staff or audit assistants. Another auditor then reviewed these documents with more experience and authority, such as audit managers or audit partners.
Audit working papers must be filed in the correct audit files, either the current audit or permanent audit files.
What is the Audit Standard Dealing with Audit Working Paper? What is it Requirement?
The International Standards on Auditing (ISA) deal with audit working papers, which are also referred to as audit documentation. ISA 230, “Audit Documentation,” sets out the requirements for audit documentation, which includes the working papers used by auditors.
The requirements of ISA 230 include:
- Documentation of the planning, performance, and results of audit procedures performed. This documentation should be sufficient to enable an experienced auditor with no previous connection to the audit to understand the nature, timing, and extent of the procedures performed.
- Documentation of the audit evidence obtained and the conclusions reached. This should include the basis for the auditor’s opinion on the financial statements.
- Documentation of significant matters arising during the audit, such as fraud or suspected fraud, significant errors or omissions in the financial statements, and disagreements with management.
- Documentation of the communication of significant matters to those charged with governance.
- Retention of audit documentation for a sufficient period of time to meet legal, regulatory, and professional requirements.
The purpose of these requirements is to ensure that audit documentation is of sufficient quality and provides an adequate basis for the auditor’s opinion on the financial statements.
The documentation should be clear, concise, and complete, and should provide evidence to support the auditor’s findings and conclusions.
ISA 230 sets out the requirements for audit documentation, including audit working papers. These requirements include documentation of planning, performance, and results of audit procedures, audit evidence obtained and conclusions reached, significant matters arising during the audit, communication of significant matters, and retention of audit documentation.
The purpose of these requirements is to ensure that audit documentation is of sufficient quality and provides an adequate basis for the auditor’s opinion on the financial statements.
There are many types of form of audit working papers, and here is the list,
Form and Content of Working Papers:
Audit working papers vary depending on many factors include:
- The size and complexity: The size and complexity of the entity can be so much different from one client to another. If the complexity of the entity nature of business is different, then the form is also different. For example, more samples are selected for a large entity since those entities have a lot of transactions, and different information is obtained for the complex nature of business.
- The nature of the audit procedures to be performed: For example, some testing is very straightforward and some testing is very complicated.
- The identified risks of material misstatement. For example, if the risks of material misstatements found to be significant, the extent of audit works should be large.
- The significance of the audit evidence obtained.
- The nature and extent of exceptions
Each of the audit working papers should have a proper subject, objective, name of the client, date of the working paper, audit period, sources of evidence, staff who prepare, and staff who review. Reference to relevance working paper should properly cross. The working paper should properly sign by the preparer and reviewer. It should be prepared because the third parties involved in preparing and reviewing the working paper could also understand.
Example:
Here is the example of audit working papers:
- Audit documents on client nature of business
- Audit documents of team meeting
- Evidence of the planning process including audit programs and any changes thereto
- Evidence of the auditor’s consideration of the work of internal audit and conclusions reached
- Analyses of transactions and balances
- Analyses of significant ratios and trends
- Identified and assessed risks of material misstatements
- A record of the nature, timing, extent, and results of audit procedures
- Evidence that the work performed was supervised and reviewed
- An indication as to who performed the audit procedures and when they were performed
- Details of audit procedures applied regarding components whose financial statements are audited
- Result of audit testing on depreciation expenses
- Result of audit testing on salaries expenses
Review of Audit Working Paper:
Audit working paper is significant for audit conclusion; therefore, the auditor needs to ensure the good quality of audit working papers are prepared. This requires proper review and supervision from the person who has better experiences and knowledge.
For the best practice, the audit working papers should review by experience level. It is part of the audit work to prove that the auditor obtains the audit evidence to support their opinion in the audit report.
Importance of Audit Working Papers:
Managing audit working paper properly is part of the quality control to ensure that auditors themselves are compliant with the applicable law and regulation.
Auditors might also be subject to be reviewed by the local authority and peer firm to assess the quality of audit work.
Keeping audits working properly helps the auditor deal with this problem and help them assess whether they themselves perform at the acceptable quality.
Auditors are required, as per standard, to make sure that all are sufficient and appropriate audit documents are obtained, and they could prove this to the relevant parties by documenting, recording, and keeping audit working papers.
The auditor might prepare their own workings papers for their recordings, testings, and reporting. Also, the auditor might obtain the papers that prepare by audit clients as well as from the third party.
The reliability of these papers is different. Normally, the evidence prepares by the auditor is more reliable than the one obtains from the third party and the one that prepares by the client is less reliable than others.
Who Owns the Audit Working Paper?
The auditor is the one who prepares and maintains the auditor’s working papers, and those working papers are evidence of their work performed and support their opinion. These documents are own by the audit firm and not by the client.
As the auditor is also responsible for the client’s confidentiality as per its code of ethics, the auditor will have to set up its own internal control to ensure that the client’s documents and information could not be leaked to the person who does not permit access.
Except for the regulator, who could access those documents and information without the client’s discretion.
It depends on the regulation of the country. In general, auditors need to properly maintain audit working paper and keep it for regulatory review for 10 years from the date of auditing year.
For example, if the audit work is performed in 2020 for the 2018 financial year, then auditor working papers will need to maintain until 2030.
How Long Does Audit Working Papers Need to Be Retained?
The retention period for audit working papers varies depending on the regulatory requirements and professional standards in the relevant jurisdiction. Generally, audit working papers should be retained for a period of time sufficient to meet legal, regulatory, and business requirements.
In the United States, the Securities and Exchange Commission (SEC) requires public companies and their auditors to retain audit working papers for at least seven years from the end of the fiscal period in which the audit was completed.
However, the Public Company Accounting Oversight Board (PCAOB), which oversees the audits of public companies, recommends retaining audit working papers for at least ten years.
In the United Kingdom, the Companies Act 2006 requires that audit working papers be retained for at least seven years from the end of the financial year to which they relate.
However, the Institute of Chartered Accountants in England and Wales (ICAEW) recommends retaining audit working papers for a longer period of time, such as ten years.
It is important to note that retention periods may be extended if there are ongoing legal proceedings, investigations, or other issues related to the audit.
Additionally, auditors should consider any legal, regulatory, or business requirements specific to the industry in which the audited entity operates.
Conclusion:
Working papers are essential for auditors to support the audit opinion. It proves that auditors perform an audit assignment based on applicable standards and as well as policy.
These working papers should state the proper information like source of the documents, the period of audit, who prepared the working papers, objective obtained or prepared the working papers, and the conclusion.
Audit working papers should also properly review by the more experienced auditors and filling correctly in the correct types of files.
Written by Sinra