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The auditing guideline on ‘planning, controlling and recording’ contains the following statement with regard to working papers: ‘audit working papers should always be sufficiently complete...

The auditing guideline on ‘planning, controlling and recording’ contains the following statement with regard to working papers: ‘audit working papers should always be sufficiently complete and detailed to enable an experience auditor with no previous connection with the audit subsequently to ascertain from them what work was performed and to support the conclusions reached.’

Required:
a) Describe four benefits that the auditor will obtain from working papers that meet the above requirement.
b) If the auditor has discovered that a claim for damages is a significant item requiring exercise of judgement in the financial statements, show what type of evidence on the matter the auditor must record in the current file. Give reasons for the inclusion of such evidence in the current file.

c) List three types of information which is normally retained in the audit file and state why such information should be available for reference in the course of an audit.
d) Comment on the desirability of using standardised working papers and give an example of such working paper and its use.

Answers

Peter
. a) Benefits
i.To control the current year’s work. A record of work done is essential for:
• The audit clerk to see that he has done all that he should.
• His supervisor, manager, the partner to whom he is responsible and other persons who will review the work he had done.
• Enabling evidence to be available in the final overall review stage of an audit so as to consider if accounts show a true and fair view.
• Working papers collected in investigation of one part of an enterprise may be used in the verification process for another part.
• The audit of one part of an enterprise is not to be conducted in isolation.

ii. To form a basis for the plan of audit in the next year clearly a starting point for a year’s audit is the review year could lead to:

a. Client staff getting to know the procedures.
b. They could design frauds, which the procedures will not uncover.

iii. Evidence of work carried out.
Audit clerk need to provide evidence to their superiors that they have carried out the work. Evidence of the work carried out may be needed in a court of law.

b) Claim for damages. Matters to record in the current file.

• Document of external verification e.g. a court statement showing the event causing the Details showing the estimated amounts of the claim.
• Copy of explanations by management about the law suit as this will give evidence to the auditor on the probability of receiving the claim.
• Written confirmation by the defendant that he will pay the amount in question.
• The company’s follow up on the matter. To determine how soon the claim will be received.

c) Write 3 types of information into the permanent file.

• An outline history of the organisation.
• List of accounting matters of importance.
• Addresses of the registered office and all other premises with a short description of the work carried on at each.

d) Standardisation of working papers.
Most firms adopt a system of standard working papers which can be used on all audits. This has many advantages including:
• Efficiency.
• Staff become familiar with them.
• Matters are not overlooked.
• They assist to instruct staff.
• Work can be delegated to lower level staff.
• Work can more easily be controlled and reviewed.

Disadvantages are;
• Work becomes mechanical.
• Work becomes standard.
• Client staff may become familiar with the method.
• Initiative may be stifled.
• The exercise of necessary professional judgement is reduced.
Musyoxx answered the question on March 16, 2018 at 16:40

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