WHAT ARE AUDIT WORKING PAPERS?

Definition of Audit Work Papers:

• Audit working papers set up the link between the auditor’s report and the client’s records. Documentation is one of the basic principles. The audit working papers are prepared solely by the auditor.
• These audit working papers are also called working papers or simply work papers. They contain a record of the audit work done; schedules prepared, information about the overall business entity.
• As these papers serve as an important supporting documents or legal evidence, the auditor must hold on to these papers in a safe custody and retain them for a reasonable tenure.
• Working papers are not only useful to form a report but also useful as a defence to prove that there were no negligences, on the part of the auditor.

Importance of Audit Working Papers:

• ‌The auditor can recognise and acknowledge the sincerity, honesty and integrity of his assistants.
• They are useful to the auditor when he finally drafts his or her report.
• ‌If there are changes in the audit staff new entrants can easily continue the work.
• ‌‌These papers serve as a guideline to the auditor to plan the next year’s Programme.
• In future, if there is a legal proceeding against the auditor accusing him or her of negligence in the duties, he or she can easily defend himself or herself in the court of law on the basis of these audit working papers.‌
• It facilitates control over the audit work.
• ‌‌It leads to proper accountability of duties.

Classification of working papers:

Working papers should be properly organised. All significant matters which require the exercise of judgement and analysis by the auditor should be included. The working papers collected or classified into two parts, a permanent and the current audit file:

• ‌A permanent audit file consists of the papers and documents which can be used every year. The file is updated as and when the circumstances demand. It contains:‌Memorandum of association, Articles of association, partnership deed and the trust deed.‌Description of the overall business of the client.‌Information on the various accounting policies like method of depreciation, valuation of inventories, followed by the client.‌ Copies of balance sheets of the earlier years.‌List of principal officers.

• The current audit file papers are concerned only with the current year’s audit. All the work done in the course of audit planning, assignment of staff, evaluation of internal control and Audit program are included in these papers. This file contains:‌Appointment letter‌, discussions with the management and the client, various internal control systems prevalent in the organisation, audit programme‌, copies of communications the auditor has with bankers, creditors debtors etc. and replies received.

Ownership of the audit working papers:

• There is a controversy amongst the different experts about the ownership of these papers. An important question arises as to who is the owner of this audit working papers. First category of experts argue that they are prepared by the auditor so he or she has the right over them. People in the second category argue that their ownership should go to the client as these papers contain important and confidential information about the business of the client.
• According to the views of the Institute of Chartered Accountants of India, the working papers are property of the auditor. The auditor should, however, maintain confidentiality of the information in the papers and properly maintain these papers for a reasonable duration of time. He or she can give copies of some papers if demanded by the client.