An audit note book is a register kept by an audit team to record crucial points observed during an audit. It also enlists errors found, doubtful queries, and explanations & clarifications to be obtained from the client in respect thereto. The purpose is to note down all the important points that need to be clarified with the client. Besides this, it also offers specific information about the day-to-day work executed by the audit staff. It includes details of all matters having an impact on the audit work being done.
In simple words, an audit note book is typically a bound book in which a wide range of matters noticed throughout the course of an audit are recorded. The audit note book serves as a permanent record of the auditor. The auditor normally keeps a separate note book for each audit. The book should be kept in a clear, complete, and methodical manner.
Further, it is worth noting that an audit note book is a type of valuable evidence that auditors can use to defend themselves if they are accused of something. In the case of City Equitable Fire Insurance Co.  Ch 407, the auditors were relieved and held honest since they had kept track of the audit work conducted at each stage.
Contents of Audit Note Book
The audit note book contains information about the following:
- Name of the business enterprise
- Organization structure, names of principal officers of the enterprise (Key managerial personnel), their duties & roles (who certifies bad debts, depreciation, etc.)
- Nature of business carried on by the client
- Important provisions of documents relating to the constitution of the enterprise such as Memorandum of Association (MOA) and Articles of Association (AOA), partnership deed, etc.
- Communication with the previous auditor, if any
- Management representations and instructions
- A list of the books of account maintained by the enterprise in the normal course of its business
- Accounting methods, internal check and internal control systems followed by the enterprise, applicable laws, etc.
- Errors and fraud discovered and their details
- Copy of audit programme
- Matters requiring explanations or clarifications, for example, routine queries on missing vouchers or receipts, etc.
- Special points that require attention in the audit report
- Extracts from minutes and contracts that have an impact on the accounts
- Extracts of correspondence made with statutory & legal authorities
- Details of all pertinent data to be used as a reference for future audits
- Date of audit initiation and completion
One point is important to mention here when it comes to the usability of this book.
In case of failure to apply reasonable care, the liabilities of the auditor of a company in relation to his work have been expressly specified in several statutes including the Companies Act 2013 and are also recognized by pronouncements of the Courts.
This book acts as valid proof in support of the auditor’s work in order to protect him from any legal action that may be brought against him for negligence. It is also extremely beneficial to the auditor in the preparation of the audit report. Moreover, it also serves as a useful reference for performing audits in the future.
Note: Audit Note Book is prepared by whom? The book is prepared by the audit team or audit assistants.
Advantages of Audit Note Book
An audit note book is an important document that notes down all the significant observations in audit and related queries. It, therefore, helps in knowing the amount of work that has been performed. Besides this, it offers many other benefits to the auditor, some of which are outlined below:
- Facilitation in audit work:
It makes an auditor’s job easier because all vital details regarding the performance of the audit are documented in this note book, and the audit clerk cannot recall everything all of the time. It aids in memorizing and recalling the important points related to the audit work.
- Preparation of report:
In addition, this book assists in gathering the information needed to prepare the audit report. Before writing and concluding the audit report, an auditor reviews the audit note book.
- Evidence of work carried out:
When a lawsuit is initiated against the auditor for negligence, this audit book can be used as documentary evidence in a Court of law.
- Provides a reference for current as well as future audits:
When an audit assistant leaves or is replaced before the audit work is completed, the audit note book acts as a guide in completing the remainder of the work since it contains all important details about the audit. Hence, it won’t disturb the flow of audit work. In addition, it also serves as a roadmap for subsequent audits.
- Audit staff’s appraisal:
It aids in evaluating the work performed by the audit staff and helps to assess their level of efficiency and competence.
- Fixing responsibility:
It shall help to fix the responsibility of the concerned audit assistant who is tasked with verifying a certain area of accounts during the course of the audit and particularly, for non-detection of fraud and error in that area.
- Adherence to Audit Programme:
The book helps to check whether and to what extent the audit programme is being sincerely followed. Deviations, if any, can be easily noticed.
An audit note book may also pose some challenges, including the following:
- It results in the development of a fault-finding mindset among the audit personnel.
- Keeping an audit note book sometimes leads to misunderstandings between the client’s staff and the audit staff.
- It must be prepared with great care because as stated previously, it can serve as evidence in a Court of law. If not prepared with proper care, it may not protect the auditor from lawsuits filed against him for negligence in the discharge of his duties.
- Because the audit note book is used as a reference in subsequent audits, any errors present in the book might get carried forward and could have a negative influence on the following audit.
An important component of audit documentation or working papers, which is maintained by the audit clerks, is known as an audit note book. It is primarily kept to note down significant issues and enquires that need clarification from the officials of the client. Or sometimes, the audit clerks might also note down matters that are to be discussed with the senior audit staff or the auditor himself. Thus, all material items concerning the conduct of an audit may be found in the note book.
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