Week 3: Chapter 4: Overview of elements of the financial report audit process • Assertions • Audit procedures • Audit evidence (sufficiency, relevance and reliability) • Audit risk • Risk of material misstatement • Inherent risk, control risk, detection risk, combined risk • Business risk Accounting vs Auditing • Accounting (responsibility of management) o Measure and record accounting data in accordance with standards o Prepare the financial report in accordance with financial reporting framework • Auditing (responsibility of auditor) o Obtain sufficient appropriate audit evidence about the propriety and accuracy of the accounting data in accordance with auditing standards o Provide an auditor opinion on whether the financial report is presented fairly in accordance with the identified financial reporting framework • Both: o Distribute the financial report, including the auditor’s report to the owner’s of the entity Professional Scepticism • Possible to prepare different reports from same data because choice is given and judgements required • ASA 200.15 o Auditor plan and perform audit with PROFESSIONAL SCEPTICISM; questioning mind and critical assessment of evidence to be alert to suspicious circumstances and draw appropriate conclusion from evidence o Recognise existence of material misstatements • Includes; o Question reliability of evidence o Being alert to contradictory evidence o Question the sufficiency of audit evidence and appropriateness o Conditions that indicate risks of fraud o Challenging management judgements, estimates and assumptions Professional Judgement • ASA 200.16 require auditors to exercise PROFESSIONAL JUDGEMENT in planning and performing the audit o Application of relevant training, knowledge and experience within the context provided by auditing, accounting and ethical standards, in making
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Week3:Chapter4:Overviewofelementsofthefinancialreportauditprocess
• Assertions• Auditprocedures• Auditevidence(sufficiency,relevanceandreliability)• Auditrisk• Riskofmaterialmisstatement• Inherentrisk,controlrisk,detectionrisk,combinedrisk• Businessrisk
AccountingvsAuditing• Accounting(responsibilityofmanagement)
o Measureandrecordaccountingdatainaccordancewithstandardso Preparethefinancialreportinaccordancewithfinancialreportingframework
• Auditing(responsibilityofauditor)o Obtainsufficientappropriateauditevidenceabouttheproprietyand
accuracyoftheaccountingdatainaccordancewithauditingstandardso Provideanauditoropiniononwhetherthefinancialreportispresentedfairly
inaccordancewiththeidentifiedfinancialreportingframework• Both:
o Distributethefinancialreport,includingtheauditor’sreporttotheowner’softheentity
ProfessionalScepticism
• Possibletopreparedifferentreportsfromsamedatabecausechoiceisgivenandjudgementsrequired
• ASA200.15o AuditorplanandperformauditwithPROFESSIONALSCEPTICISM;questioning
mindandcriticalassessmentofevidencetobealerttosuspiciouscircumstancesanddrawappropriateconclusionfromevidence
o Recogniseexistenceofmaterialmisstatements• Includes;
o Questionreliabilityofevidenceo Beingalerttocontradictoryevidenceo Questionthesufficiencyofauditevidenceandappropriatenesso Conditionsthatindicaterisksoffraudo Challengingmanagementjudgements,estimatesandassumptions
ProfessionalJudgement
• ASA200.16requireauditorstoexercisePROFESSIONALJUDGEMENTinplanningandperformingtheaudit
o Applicationofrelevanttraining,knowledgeandexperiencewithinthecontextprovidedbyauditing,accountingandethicalstandards,inmaking
informeddecisionsaboutthecoursesofactionthatareappropriateinthecircumstancesoftheauditengagement
• Requiredtodetermineo Materialityo Assessingauditrisko Evaluatingauditevidenceo Reasonablenessofaccountingestimateso Evaluatingmanagementjudgementsonapplicationofaccountingstandardso Appropriatenessofgoingconcernbasis
AreasofAuditinterest
• ACCOUNTABLEACTIVITYo Governingbodyofanentityisresponsibletoreportonorsubjectto
examinationtoanaccountabilityrelationshipbetweentwoormorepartiestotheentity
• Organisationalstructureo Divisionoftasksbetweenindividualemployees,groupsordepartmentsand
locationso Tocontroltheworkofanentity,proceduralmethodsandmeasuresare
adoptedtoprovideevidencethatthetasksspecifiedbytheorganisationalstructurehavebeencarriedout
o INTERNALCONTROL§ Reviewsystemofdocumentation§ Tracevarioustypesoftransactionsfrominitialtoultimatedisposition
inthesystem§ Makeevaluation
AccountableActivityoftheentity
1) Thecollectionoforiginaldataa. Sales,purchases,lending,borrowingb. Understandflowoftransactions
2) Theallocationsofreclassificationsofaccountingdataa. Journalsmaycontainentriesthatdon’trepresentexchangetransactions(i.e
depreciationentries)b. Whichallocationandreclassificationmethodsareacceptableandmust
observeifwhatentityhasdoneisacceptable3) Thepresentationoftheresultsoftheaccountingprocess
a. Provideassessmentb. Reportonwhetherfinancialreportpresentsfairlythefinancialpositionof
thefirmtotheAASBOrganisationoftheentity
• Internalcontrol;processdesigned,implemented
Assertions• Assertionsbythoseinchargedwithgovernanceandmanagementareembodiedin
thefinancialreport=FINANCIALREPORTASSERTIONSo Auditorusesassertionstoassessrisksbyconsideringdifferentpotential
misstatementsthatmayoccuro Designauditproceduretoaddresstheserisks
• Assertionsdealswithrecognitionandmeasurement• 3categories• auditorneedstoobtainevidencethatsupportseachassertionsforeverymaterial
componentofthefinancialreport(i.eaccountbalance)
Assertions:transactions
• Testingthisparticularbalancetoseeifitiscorrect• Whenmanagementgivesmethisnumber,theyaresayingthatalltransactionsthat
arerecordeddidTAKEPLACEandhavebeenincluded• Managementclaims/asserts
o Alltransactionsoccurred§ OCCURENCE
o Alltransactionsareincluded§ COMPLETENESS
o Transactionsofonlythisyearareincluded(rightaccountingperiod)§ CUT-OFF
o Transactionsarevaluedcorrectly§ ACCURACY
o Transactionsareclassifiedintoproperaccounts§ CLASSIFICATION
AssertionsaboutCLASSESTRANSACTIONSandEVENTSfortheperiodunderAUDITOCCURRENCE • Transactionsandeventsthathavebeenrecordedhave
occurredandpertaintotheentityCOMPLETENESS • Alltransactionsandeventsthatshouldhavebeen
recordedhavebeenrecordedACCURACY • Amountsandotherdatarelatingtorecordedtransactions
andeventshavebeenrecordedappropriatelyCUT-OFF • Transactionsandeventshavebeenrecordedinthe
correctaccountingperiodCLASSIFICATION • Transactionsandeventshavebeenrecordedinthe
properaccounts
Assertion:balances
• Managementclaims/asserts
o EachPEphysicallyexists§ EXISTENCE
o AllPEisincludedintheschedule§ COMPLETENESS
o EachPEisvaluedasperaccountingstandards–costorrevaluationmethod(FV),depreciation
§ VALUATIONo Companyowns/holds/controlseachPE
§ RIGHTSAssertions:BalanceSheetAssertionsaboutACCOUNTBALANCESattheperiodend:Existence • Assets,liabilitiesandequityinterestsexistRightsandObligations
• Theentityholdsorcontrolstherightstoassets,andliabilitiesaretheobligationoftheentity
Completeness • Allassets,liabilitiesandequityintereststhatshouldhavebeenrecordedhavebeenrecorded
Valuationandallocation
• assets,liabilityandequityinterestsareincludedinthefinancialreportatappropriateamountsandanyresultingvaluationadjustmentsareappropriatelyrecorded.
Assertionsaboutpresentationanddisclosure:Occurrenceandrightsandobligations
• disclosedevents,transactionsandothermattershaveoccurredandpertaintotheentity.
Completeness • alldisclosuresthatshouldbeincludedinthefinancial
reporthavebeenincluded.
Classificationandunderstandability
• financialinformationisappropriatelypresentedanddescribed,anddisclosuresareclearlyexpressed.
AccuracyandValuation
• financialandotherinformationisdisclosedfairlyandatappropriateamounts
Identifyassertionatrisk(Forassertions–ReferASA315paraA128)• Thereisariskofoverstatementofinventory
• Valuation• Thereareindicatorsforimpairmentofplantandequipment
• Overvalued;assertionatriskisVALUATION• Thereisariskofnextyearsalesbeingrecordedinthecurrentyear
• RiskisCUT-OFF• Thereisariskthatsomeofthedebts(accountsreceivable)mightbeirrecoverable
• i.eoverstatement• Valuation
• Thecompanyhasacomplexdebtstructure• Debtisbalancesheetitem• CLASSIFICATION(shorttermorlongterm)• COMPLETENESS• VALUATION
Example:AssertionsandObjectivesfortheaccountbalanceofinventoryofamanufacturingcompanyAssertion Auditobjectives Auditprocedure/evidenceExistence • Inventoriesrecorded
physicallyexist• Representitemsheldforsale
innormalcourseofbusiness
• Stocktake–selectfrominventoryrecordsandcountphysicalstock
Rightsobligation • Companyhaslegalrightsofownershipoftheinventories
• Inventoriesexcludeitemsbilledtocustomersorownedbyothers
• Checkshippingdocuments(billsoflading)forownershipofgoodsintransit
Completeness • Inventoryquantitiesasperaccountingrecordsincludeallproductsandmaterialsandsuppliesonhand
• Alsoincludeproducts,materialsandsuppliersintransitorstoredoutsidelocation
• Stocktake
ValuationandAllocation
• Inventoriesareproperlystatedatthelowerofcostandnetrealisablevalue
• Slow-moving,excess,defective,obsoleteitemsareproperlyidentifiedandvalued
• Comparesubsequentsalespricetocost
AuditProcedures(tocheckassertion)• Inspection
o Examinationofdocuments,recordsortangibleassetso Originaldocuments(ASA500)o Records–effectivenessofinternalcontrolovertheirprocessingo Tangibleassets–existence,butnotvaluation,completenessorownership
• Observationo Auditorobservingthebehaviourofoperatingpersonnelandthefunctioning
ofthebusinesso i.econtrolactivitiesbeingcarriedout
• Externalconfirmation o Auditorobtainsstatementsfromathirdparty(theconfirmingparty)suchas
banks,debtors,etc.o Communicateddirectlytoauditor
• Recalculationo Checkingthemathematicalaccuracyofdocumentsandrecords
• Re-performanceo i.eexceedingmaximumcreditlimitofacustomer;auditorwillputafake
transactiontoseeifactionwillbetakenplace(i.esystemflags)o auditor’sindependentexecutionofproceduresorcontrolsthatwere
originallyperformedastheentity’sinternalcontrol• Analyticalprocedures• Enquiry
o Seeksappropriateinformationfromknowledgeablepersonsinsideoroutsideentities
AuditEquation
• AUDITEVIDENCE=underlyingaccountingdata+corroboratinginformation• Underlyingaccountingdata
o Booksofprimeentryo Worksheetso Accountingmanuals
• Corroboratinginformationo Documents;cheques,invoices,contracts,minuteso Confirmationso Businessstrategy
AuditProcedures:AccountsReceivables
• EXISTENCEASSERTION
o Takerandomsampleselectionandsendthemaconfirmationletter(senttodebtors)
o Examiningsubsequentpaymentsreceivedfromdebtors§ Ifpartyresponseitexists§ Ifnoresponse;seeifpaymentismadeataparticularperiod
o Computeratios(analyticalprocedures)§ ProportionofA/Rtosales§ ComparingtotalsalesduringaveragecreditperiodandactualA/R
• VALUATIONASSERTION–Isthedebtrecoverable?o Examiningsubsequentpaymentsreceivedfromdebtors
§ Howmuchcamefromaparticularparty?o Computeratios–proportionofBaddebtstoA/R
§ Howmuchwereactualbaddebts?Wastheprovisionenough?o Reviewageddebtbalancestatement
§ Debtdueclassification• <30 0%• >30<60 5%• >60<90 25%• >90 75%
TheAuditTrail
• Chainofevidenceprovidedbycoding,crossreferencesanddocumentationthat
connectsaccountbalancesandothersummaryresultswithoriginaltransactiondatao Alldocumentsfromorigintofinancialreport
• Completenesso Gotodispatchnoteso WhichofthedispatchnotesisnotreflectedinthefinalSalesJournalo Salesmadebutnotrecordedinthefinalaccount
o Sampleshouldcomefromsupportingdocumentationso (USETHERIGHTTRANSACTIONS)
AuditEvidence
• Auditevidence;
o Evidenceissufficienttoreachadecision(samplesize)o Evidenceisappropriate(relevanceandreliableevidence)
• Auditorcanonlyprovidereasonablelevelofassuranceconcerningfairrepresentationoffinancialreport
• AbsoluteassurancenotpossibleduetoINHERENTRISKo Hasallinformationbeenincluded?o Well-concealedfraudso Reasonabletimeperiodtocompletetheaudito Reasonabletime
• APPROPRIATENESS:o Outsideentityinfoismorereliableo Internalinfoismorereliablewheninternalcontroliseffectiveo Obtainedbytheauditor,infoismorereliableo Documentsmorereliablethanoralo Originaldocumentsmorereliablethanphotocopies
Example:RelevanceofEvidence
• Auditoristestingexistenceofinventory• Whichistheappropriateauditprocedure?
o Arandomsampleofitemsisselectedfromtheshelvesandtracedbacktotheaccountingrecords(listofinventoryproducedbythesystem)OR
§ Inappropriateprocedurefortheassertionyouaretesting=irrelevanto Arandomsampleofitemsisselectedfromtheaccountingrecords(listof
inventoryproducedbythesystem)andtracedbacktotheshelves§ Populationsampleshouldcomefromtherecords
Example:Reliabilityofevidence• Further
o Theclientengagesitsstoresteamtoundertakethestocktakeandtheentirestockcountisundertakenbytheappointedstaff
§ Infonotgoingtobereliable§ Stocktaketeammaybeconductingtheft
o Theclientengagesateamnotatallassociatedwithpurchases,sales,inventoryrecords,storesdept.toundertakethestocktakeandtheentirecountisundertakenbytheindependentteam.
§ Goingtobemorereliable
Overviewoftheauditriskmodel• Auditriskistheriskthattheauditorwillgiveaninappropriateauditopinionwhen
thefinancialreportismateriallymisstated• FSaremateriallymisstated->Auditorgivesacleanbillofhealth• AuditRisk
o =Riskofmaterialmisstatement+DetectionRisk(ASA200paraA34)• EngagementRisk
o Auditor’sexposuretolosstotheprofessionalpracticefromlitigation,adversepublicityinconnectionwithanassuranceengagement
ComponentsofAuditRiskmodel
• Example:o Hugeriskinvolvedthatnumbercouldbemanipulatedbycliento Inherentriskofthatnumberbeingmisstatedishigh
• Controlrisko Riskofcontrolsfailinganderrorsstillbeinginthefinancialstatement
InherentRisk– Susceptibilityofanassertiontomaterialmisstatementgiveninherentand
environmentalcharacteristics,butwithoutregardtoprescribedcontrolprocedures.
– Riskofsomethinggoingwrongduetothenatureoftheparticularitem– Examples:
§ Accountslikelytorequireadjustment§ Complexityofunderlyingtransactions§ Judgmentinvolvedindeterminingaccountbalances§ Susceptibilityofassetstolossormisappropriation§ Occurrenceofunusualandcomplextransactions,particularlyator
nearyear-end§ Transactionsnotsubjecttoordinaryprocessing.
Controlrisk– Controlriskisafunctionoftheeffectivenessofthedesign,implementation
andmaintenanceofinternalcontrolbymanagementtoaddressidentifiedrisksthatthreatentheachievementoftheentity’sobjectivesrelevanttopreparationoftheentity’sfinancialreport.
– However,internalcontrol,nomatterhowwelldesignedandoperated,canonlyreduce,butnoteliminate,risksofmaterialmisstatementinthefinancialreport,becauseoftheinherentlimitationsofinternalcontrol.Forexample,
§ thepossibilityofhumanerrorsormistakes,§ Thepossibilityofcontrolsbeingcircumventedbycollusionor
inappropriatemanagementoverride.
DetectionRisk• Detectionrisk(DR):Riskthatauditors’substantiveprocedureswillleadauditorto
concludenomaterialmisstatementexistswhen,infact,onedoes.• Duringtheplanningphaseoftheaudit,aplannedacceptablelevelofdetectionriskis
determinedforeachsignificantassertion.• Therefore,auditriskisacombinationofinherentrisk,controlriskanddetectionrisk.
BusinessRisk• Businessrisk’isdefinedas:
‘Theriskthatanentity’sbusinessobjectiveswillnotbeattainedasaresultoftheexternalandinternalfactors,pressuresandforcesbroughttobearonanentityand,ultimately,theriskassociatedwiththeentity’ssurvivalandprofitability.’• Requiresextensiveknowledgeofclient’sbusinessandindustry.• Whatcanpreventthecompanyfromachievingitsobjectives/goals?
-Whatismakingtheclientvulnerablesoitsunabletoachieveitsobjectives/goals?
• i.etoomanyenvironmentalregulations• Demand;shiftindemand• supplyaffectedbysupplierandpoliticalrisksintheirrespectivecountries• Process;newefficientandcheapprocess• Controls;threatsnotrecognisedandopportunitiesnottaken• Financialreportingobligations;easytoraisemoney?
RiskofMaterialmisstatement(RMM)• RMMexistsattwolevels
o Attheoverallfinancialreportinglevel§ i.emanagementtryingtosaveface§ broaderlevel
o Attheassertionlevel§ Accountlevel,i.einventory
o (ASA200paraA36)
’RMM• Risksofmaterialmisstatementattheoverallfinancialreportlevelrefertorisksof
materialmisstatementthatrelatepervasivelytothefinancialreportasawholeandpotentiallyaffectmanyassertions.
• Example--– Managementisnotknowledgeableoftheindustryandthebusiness– Managementhasthereputationofusingaggressiveassumptionsand
accountingpoliciesandbelievesingettingthejobdoneatallcosts– Anumberofenquiriesarecurrentlyunderwayinrelationtoanticompetitive
behaviour– DominanceontheBoardbytwokeyexecutives– Stringentdebtcovenantsand– CLbeingtwicetheCA
ReducetheoverallRMM• Moreevidence• Properassignmentofpeople• Morescepticism• Reliableauditprocedures• Consultingspecialistswhererequired• Adequatesupervision• Reviewofmaterialaccountbalancesbypeers
RMMatanassertionlevel
• SAMPLINGRISK
o Sampleisnotrepresentativeofpopulationo Differentconclusionhastheentirepopulationbeenusedo Reducedbyincreasingsamplesizebutcannotbeeliminated
• NON-SAMPLINGRISKo Riskofarrivingatincorrectauditconclusionsbyfailingtoapplyappropriate
auditprocedures,improperapplicationorwrongconclusionsfromresultso Canbecontrolledthroughqualitycontrolandadheringtostandards
Example:InventoryAccount
• LowControlRisk
o Clientengagesathirdpartyexperttoprovidevaluationo Clientundertakesmonthlystocktakeatallwarehousesandreconcileso Theinternalauditdeptconsidersitasafocusitemandallrecommendations
areacceptedbymanagement
• HighControlRisko Theinternalauditdepthasreportmanyerrorsandfraudsbutnooneis
payingattentiono Stocktakeisundertakenbystorespeopleonlyo Stocktakeisonceayearisgenerallynotsupervised
CombinedRiskassessment(matrix)
• Seetextbookmartrix• Inverserelationshipbetweenthecombineddegreeofinherentandcontrolrisksand
theDETECTIONRISKACCEPTABLEbyauditorstokeepauditriskslow
Materiality• Planningmateriality• Performancemateriality• Quantitativemateriality• Qualitativemateriality
Ruleofthumbforplanningquantitativemateriality
• Eachcompanycanhavetheirown;nostandard
• Materiality;atwhatdollarpointwillmisstatementinfluenceuserdecisionmaking?• AuditorsneverrevealmaterialitytoCLIENTandUSERS
Example:• Profits=$100,000• Shareholdersdecisionswillbeaffectediftheprofitsaremisstatedby5%• Materialityissetat$5000• Tobeonthesafeside,youinformyourauditteamthatthematerialityis$3000• Attheendoftheaudit,youprepareasummaryofauditdifferencesandnotethat
theerrorsdetectedandnotrectifiedbymanagement=$2800• Younowconcludethatuncorrectederrorsthathavebeendetectedarelessthan
$3000.
• Eveniftherewereafewundetectederrors,solongastheyarelessthan$2000,totalerrors(detectedandundetected)willbelessthanyourmaximumlimit($5000).
• Here,• $5000isconsideredasplanningmateriality
• maximumlimit• $3000isconsideredasperformancemateriality
• errorsyoufinddonotexceedperformancematerialitylimit• andthisevaluationoferrorsfromdollarvalueperspectiveisdefinedasquantitative
materiality(quantitativematerialmisstatement)QualitativeFactorsshouldalsobeconsideredwhilemakingmaterialityjudgement:Examples:
– aninadequateorimproperdescriptionofanaccountingpolicy– afailuretodiscloseabreachofregulatoryrequirements– Anerrorquantitativelyimmaterialmightchangetheprofittrendofthepast
fewyears– Anerrorquantitativelyimmaterialmightconvertprofitintoaloss
Materiality(ASA320)• Auditormustmakepreliminaryassessmentofmaterialitywhenplanningtheaudit.• ‘Materiality’definedasinformation,individuallyorinaggregate,thatifmisstatedor
omittedfromafinancialreportmayadverselyaffectdecisionsabouttheallocationofscarceresourcesmadebyfinancialreportusers.
• Auditormustdeterminematerialitylevelforthe:– Financialreportasawhole– Particularclassesoftransactions,accountbalancesanddisclosures.
• OVERALLMATERIALITY– Materialitylevelforthefinancialreportasawhole
• SPECIFICMATERIALITY– Materialitysetforclassoftransactions,accountbalanceanddisclosurelevel
• Thehighertheauditrisk,thelowerthematerialitythresholdtheauditorsetsPerformanceMaterialityASA320.11(ISA320.11)requiresthattheauditorsetperformancematerialityforthepurposesofassessingtherisksofmaterialmisstatementanddeterminingthenature,timingandextentoffurtherauditproceduresthatneedtobeperformed.• Reducestoanappropriatelylowleveltheprobabilitythattheaggregateof
uncorrectedandundetectedmisstatementsinthefinancialreportexceedsthematerialitylevelforthefinancialreport.
• Usuallyrangesfrom60%(forhighrisk)to85%(forlowrisk)ofthefigureestablishedformaterialityforthefinancialreportasawhole.
TypesofAuditTest• TestsofControl
o Evaluatetheeffectivenessofthedesignorprocdeuresininternalcontrolortheoperatingeffectivenessofthosepolicies
• Substantivetestso Obtainevidenceaboutvalidityofaccountingtreatmentoftransactionand
balances,orconversely,oferrorsorirregularities§
TestofControlsExamples
1. Theauditorobservesthecashhandlingfunctionforanhour• Testingcontrols
2. Theauditortakesasampleof10end-of-the-dayreconciliationstatementsandreviewsiftheresponsiblestaff(client)hassigned(proofofreconciliationcheckedandpendingissuesfollowedup)
• Testingcontrols,notdollarvalueSubstantiveTest
• Checkingsomethingo AlsoTESTOFDISCLOSURES
Examples1. Theauditorrecalculatesthedepreciationschedule
1. Testingbalanceofaparticularaccount2. Theauditortakesasampleofonesaletransactioneachmonthandvouchesittothe
invoice,despatchnote,creditverificationandcustomerorder1. TESTOFTRANSACTIONS
3. Theauditorcalculatesbaddebts/AccountsReceivablesratio1. ANALYTICALPROCEDURES
AuditTests
Usingtheworkofanexpertorcomponentauditor• Giventhecomplexityandhighlyspecialised
natureofmanyclientoperations,auditorsoftenfindtheyareunabletoserviceclientseffectivelywithoutspecialistknowledge.
• Experts;skills,knowledgeandexperienceinparticularfield• Expertscanbeinternalorexternaltotheauditfirm.• Includes
• Industryspecialists• Functionalspecialists• Technicalspecialists
• Auditworkforaclientmayalsobeundertakenbyanumberofdifferentauditors(consideraconsolidatedentitywithsubsidiariesinmanycountries).• Componentauditor;performsworkonfinancialifnorelatedtoacomponent
ofthegroupauditDocumentationofauditwork:Auditworkingpapers• Workingpapersarethespecificmeansusedtodocumentauditevidence.• Twomaindivisions:
– Permanentfile—storeofdocumentsrelevanttothisauditandfutureyears(e.g.copiesofcompanyconstitution,continuingcontracts,futureauditors).• Majorcontractors,borrowings• Grossprofittrend• MinutesofBODandshareholder’smeeting
– Currentworkingpaperfile—documentaryrecord ofevidencegatheredandconclusionsreached onthisaudit.• i.eonlyrelatedtothisperiod’s–notrelatedtofuture
• MakesureitsclearforpeopletofollowinthefuturePermanentFile
• Fornewauditor• Cangetahistory
PermanentFile• companyconstitutionorrules• minutesofshareholderandmanagementmeetings• Trendanalysis
WorkingFile• listingtheauditproceduresundertaken• trialbalanceworkingpaperschedules,includingexternaldocuments• Bankconfirmations,reconciliationstatements
LegalAspectsofWorkingPapers• ASA230outlinestherequirementsthatworkingpapersbeproperlypreparedand
maintained.• Courtshavedeterminedthatworkingpapersarethepropertyoftheauditor.• Auditorshouldnotpermitaccesstoauditfilesbyclient’sstaff,whomaythen
becomefamiliarwithauditproceduresandcouldfacilitatefraud.• Workingpapersmustbekeptforaminimum7years.• Cannotdeleteordiscardauditdocumentsbetweencompletionofauditfileandend
of7-yearperiod.Accesstoworkingpapers
• Auditorhasconfidentialitydutyunders140APES110• Shouldnotdiscloseinformationaboutclientto3rdpartywithoutspecificauthority
fromtheclient,unlesslegalorprofessionaldutytodiscloseitPreparingworkingpapers
• Clientcanmakeerrorsofomissionormisappliesaccountingstandards• ADJSUTINGJOURNALENTRIES;adjustmentsauditorfeelsarerequired• Proposedentriesmadeontheauditor’sworkingpapers• Iftheclientdeclines,auditorissuesamodifiedauditor’sopinion
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