Audit Working Papers Overview

Study Notes

Meaning: Audit working papers are a collection of documents that record the steps taken and conclusions made by an auditor during an audit.
Importance: They are essential for maintaining the quality and integrity of the audit process.
Purpose of Audit Working Papers:
- Maintain quality and integrity of the audit.
- Provide a detailed trail of the auditor's work.
- Document evidence obtained and procedures followed.
- Form a basis for the auditor's opinions.
- Evidence of the auditor's work.
Contents of Audit Working Papers:
- Audit plan.
- Client information.
- Risk assessments.
- Internal control evaluations.
- Correspondence with the client.
- Review notes and comments.
- Permanent Audit File:
  - Documents used continuously for ongoing audits.
  - Includes engagement letters, foundational documents like memorandum of association, articles of association, by-laws of the company, long-term contracts, relevant board meeting minutes, client business history, accounting policies and manuals.
- Current Audit File:
  - Stores information related to a specific audit engagement.
  - Contains information that varies from year to year.
  - Example: Audit plan, current year board meeting minutes, financial statements, documentation of key audit findings, adjusting entries, reconciliations, correspondence, bank confirmations.
Documentation of Evidence:
- Audit working papers record evidence obtained during the audit that supports the auditor's opinion.

Purpose: To ensure the client adheres to relevant laws and regulations for the current year.

Purpose: A detailed diary or register maintained by auditors to record all critical aspects of the audit process.
Contents: Audit program, timing of procedures performed, analysis of transactions and balances, queries raised, resolutions to queries, clarifications, adjustments, discussions with management, conclusions reached by the auditor, copies of letters, file notes, evidence of supervision.
Identification: While making entries, auditors identify the item being checked (e.g., purchase invoice number, date, details of sample selection).
Queries: Queries raised during the audit are recorded in detail in the audit notebook, with client responses and records of meeting discussions.
Adjusting Journal Entries: If a query is valid, the auditor ensures an adjusting journal entry is passed to address the error. The reference number of the adjusting journal entry is noted in the audit notebook.
Importance: Audit notes are valuable evidence in the court of law, serving as a record of matters considered during the audit.
Difference from Working Papers: The audit notebook is more narrative and detailed than working papers.

British Colonial Era: The first Auditor General, Sir Edward Drummond, was appointed in 1860, marking the beginning of the modern auditing system in India. The Departments of Accounts and Audit were established in 1862.
Early 20th Century: The Companies Act of 1913 made the audit of company accounts compulsory, formalizing auditing practices in India.
Post-Independence Developments: After independence in 1947, the Comptroller and Auditor General (CAG) of India was established under the Constitution of India to audit government receipts and expenditures.
Shifting from "True and Correctness" to "True and Fairness": The emphasis of auditing shifted from verifying "true and correctness" of facts to assuring the "true and fairness" of financial statements, as determined in the Royal Mail Steam Packet Companies case.
Modern Era: Auditing in India is currently governed by various laws and standards, such as the Companies Act, 2013, Auditing and Assurance Standards (AAS), and the Indian Accounting Standards. The Institute of Chartered Accountants of India (ICAI), established in 1949, regulates the profession and sets auditing standards.
Modern Approaches: Robust internal control systems, risk-based auditing, and computer-assisted audit techniques are now emphasized in auditing practice.

Definition: Auditing is a systematic and scientific examination of the books of account of a business or non-business entity.
Purpose: To verify the results shown by the profit and loss account and the state of affairs as shown by the balance sheet.
Scope: It includes critical review of the system of accounting and internal control.