Audit Working Papers and SA 230

What are audit working papers?

Audit working papers refer to the documentation of the planning and execution of an audit engagement. They are essentially a record of audit procedures performed by the auditor while auditing his client’s books, relevant audit evidence obtained, and the conclusions reached by him. They may include information such as details of the audit program, analyses, summaries of significant matters, letters of confirmation and representation, checklists, risk assessments, etc.

It is very important that an auditor should maintain proper working papers to demonstrate the audit work. The purpose of the working papers is to demonstrate that the audit is and has been conducted in adherence to the basic principles. The working papers include the documents prepared or obtained by the auditor and retained by him in connection to the audit. They include all evidence gathered by the auditor that work has been performed in conformity with relevant auditing standards.

In short, working papers are used to document the information obtained during an audit. They show that the auditor received adequate information to support his or her view about the underlying financial accounts of the client. Working papers also reflect that the audit was adequately planned as well as supervised.

Further, the audit working papers prepared for a client and its audit engagement are usually detailed enough for another auditor, who is adequately experienced and competent but unfamiliar with the client, to obtain an overall understanding of the engagement.

Terms such as audit documentation or “work papers” are also sometimes used to describe audit working papers. Some examples of audit documentation can be:

  • Audit program
  • Memoranda
  • Analyses
  • Letters of confirmation
  • Representation letters
  • Schedules
  • Photocopies of documents

Types

In the case of recurrent audits, some working paper files may be divided into two categories: permanent audit file and current audit file: where the former contains information of continuing importance, and the latter provides information relevant to a single audit period. To know more about their contents and the kinds of information recorded, please refer to this blog:

Permanent Audit File and Current Audit File

In addition, working papers vary in their format and content from one audit to another, but they are commonly influenced by the following factors:

  • nature of audit engagement
  • nature and complexity of the client’s business
  • form of audit report
  • nature and condition of the client’s records
  • the extent of reliance to be placed on internal controls
  • supervision of work performed by audit assistants

Advantages

The Institute of Chartered Accountants of India (ICAI) has issued SA 230 “Audit Documentation” which deals with an auditor’s responsibility to prepare working papers for a financial audit. Audit documentation must be prepared by auditors on a timely basis. SA 230 says that working papers are significant records that aid the auditor in proving that fair and reasonable conclusions were reached by him based on suitable audit evidence.

According to this Standard, the preparation of working papers helps in a variety of ways, some of which are:

  • To give support in the preparation of the auditor’s report
  • To provide evidence that the audit has been planned and conducted in a proper manner and in conformity with relevant guidelines, auditing standards, and legal or regulatory requirements.
  • To assist the auditor in planning and supervising the audit work
  • To fix the responsibility and make the audit staff or assistants accountable for their work
  • To retain the documents concerning significant audit matters that may be of continuing use for future audits
  • To aid in the conduct of quality control reviews and inspections

Working papers are the property of the auditor

The auditor has always been regarded as the proper and rightful custodian of audit working papers. Hence, the ownership of working papers belongs to the auditor. However, at his discretion, he can make some extracts or copies of such papers available to the client. To know more about the ownership of audit documentation, please read this blog:

Ownership of Audit Working Papers: Who owns them?

What are the responsibilities of an auditor as per SA 230?

SA 230 specifies that an auditor should meet certain requirements with regard to audit documentation. Some of these are as follows:

  • The auditor should prepare and maintain audit documentation on a timely basis.
  • He must document all the audit procedures performed by him as well as the audit evidence that he has obtained.
  • The auditor has to assemble the audit working papers in an audit file and complete the administrative procedure of compiling and assembling the final audit file on a timely basis after the date of issue of the auditor’s report. The Standard on Quality Control (SQC – 1) says that proper policies and procedures should be set out for the completion and assembly of final audit files on a timely basis after the audit engagement is over. Ordinarily, it is suggested that the audit files should be assembled within a maximum period of sixty days from the date of the audit report.
  • After the assembly of the final audit file, the auditor has to make sure that such audit documentation is not deleted or discarded before the end of its retention period, as may be laid down under any relevant rule or regulation.
  • Furthermore, these audit files are usually kept in folders or other storage media, whether in physical or electronic form, to store the audit documentation for a specific engagement.

There are no explicit rules as regards the retention of audit working papers. These working papers need to be kept in safe custody by the auditor and in a confidential manner for such time as may be necessary to meet the requirements of his practice (i.e., to service the client) or to satisfy any legal or professional requirement related to record retention.

However, the Standard on Quality Control (SQC – 1) requires that working papers must be retained by the auditor for at least 7 years from the date of issue of the auditor’s report.

Conclusion

Audit working papers are used to assist the audit work and they give an assurance that the audit was carried out in conformity with applicable auditing standards. Being a record of how the audit was conducted, they indicate that the audit was properly carried out and was properly planned & supervised. They might also be useful to an auditor in the future if a lawsuit is filed against him on account of negligence and lack of care.


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Ruchi Gandhi

The author enjoys to write informational content in the domain of company law and allied laws. She takes interest in doing thorough and analytical research on legal topics. She is a CA along with MBA (Fin) and M. Com.

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