Audit documentation manual

10 10 Example of Auditor-Prepared Working Paper 10 11 Audit Records in Information Analysis 10 12 Lead Schedules 11 13 Overview of Audit Documentation 2 14 Auditing Standards 2 14.1 Term

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A Comprehensive Guide to Audit Working Papers

Prepared for Internal Audit Use

Last Updated: May 2025

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2 Auditing Standards 3

2.1 Terminology 3

2.2 Importance 3

3 Contents of Working Papers 3 3.1 Extent 4

3.2 Form and Content 4

3.3 Clients Schedules 4

4 Standardisation 4 4.1 Advantages of Standardisation 4

4.2 Disadvantages of Standardisation 5

5 Permanent and Current Audit Files 5 5.1 Permanent Audit File - Typical Contents 5

5.2 Current Audit File - Typical Contents 6

5.3 For Larger Clients 7

6 Confidentiality, Safe Custody, Retention, and Ownership 7 6.1 General Principles 7

6.2 Considerations for Retention 7

6.3 Determination of Ownership 7

6.4 Security of Working Papers 7

7 Planning Documentation 7 7.1 Audit Program Features 7

8 Documenting Accounting and Internal Control Systems 8 9 Preparing Working Papers 8 9.1 General Principles 8

9.2 Layout Standards 8

9.3 Indexing 9

9.4 Audit Ticks 10

10 Example of Auditor-Prepared Working Paper 10 11 Audit Records in Information Analysis 10 12 Lead Schedules 11 13 Overview of Audit Documentation 2 14 Auditing Standards 2 14.1 Terminology 2

14.2 Importance 2

15 Contents of Working Papers 2 15.1 Extent 3

15.2 Form and Content 3

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15.3 Clients Schedules 3

16 Standardisation 3 16.1 Advantages of Standardisation 3

16.2 Disadvantages of Standardisation 4

17 Permanent and Current Audit Files 4 17.1 Permanent Audit File - Typical Contents 4

17.2 Current Audit File - Typical Contents 5

17.3 For Larger Clients 6

18 Confidentiality, Safe Custody, Retention, and Ownership 6 18.1 General Principles 6

18.2 Considerations for Retention 6

18.3 Determination of Ownership 6

18.4 Security of Working Papers 6

19 Planning Documentation 6 19.1 Audit Program Features 6

20 Documenting Accounting and Internal Control Systems 7 21 Preparing Working Papers 7 21.1 General Principles 7

21.2 Layout Standards 7

21.3 Indexing 8

21.4 Audit Ticks 9

22 Example of Auditor-Prepared Working Paper 9 23 Audit Records in Information Analysis 9 24 Lead Schedules 10 25 Past Examination Question 10 25.1 Points to Note 10

26 Conclusion 10 27 Supplementary Guidance 11 27.1 Best Practices for Documentation 11

27.2 Common Pitfalls to Avoid 11

28 Appendices 11 28.1 Appendix A: Sample Audit Program Template 11

28.2 Appendix B: Standard Audit Tick Legend 11

28.3 Appendix C: Glossary of Terms 11

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1 Overview of Audit Documentation

This manual addresses audit working papers from both theoretical and practical perspectives.The following extracts from the Paper 6 Audit Framework syllabus highlight the examinablenature of audit working papers:

• Fundamental principles and concepts: Audit evidence and documentation

• Audit evaluation and planning: Developing the audit plan (an audit working paper)

• Performance of an audit:

– Determining the internal control systems and documenting the system

– Designing the audit program (an audit working paper)

This manual outlines the requirements of relevant auditing standards and practical aspects ofpreparing working papers

2 Auditing Standards

The relevant standards are ISA 230 Documentation and SAS 230 Working Papers There are

no significant differences between them Both address:

• Terminology

• Importance of documentation

• Form and content (including standardized working papers and permanent audit files)

• Confidentiality, safe custody, retention, and ownership

2.1 Terminology

‘Documentation’ or ‘working papers’ refers to the material prepared or obtained and retained

by the auditor in performing the audit It may be stored on paper, film, electronic, or othermedia

2.2 Importance

According to the standards, documentation serves two primary purposes:

• To document matters supporting the audit opinion

• To evidence that the audit was conducted in accordance with auditing standards

Documentation also guides planning future audits and familiarizing new staff, saving time andcost It is critical that working papers record facts as known at the time decisions or conclusionsare made, in case of subsequent challenges or inquiries

3 Contents of Working Papers

In summary, working papers provide a record of:

• Planning and performance of the audit (including nature, timing, and extent of procedures)

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• Supervision and review of audit work

• Audit evidence (including oral representations) obtained to support the audit opinion

3.1 Extent

While documentation must be sufficiently complete and detailed, its extent is a matter of sional judgment It is impractical to document every consideration As a guide, an experiencedauditor with no prior connection to the audit should understand the work performed and thebasis of decisions

profes-3.2 Form and Content

The form and content are influenced by:

• Nature of the engagement

• Form of the auditors report

• Nature and complexity of the business

• Condition of the entitys accounting and internal control systems

• Needs for direction, supervision, and review

• Audit methodology and technology used

• Use of standardization

3.3 Clients Schedules

Schedules, analyses, and documentation prepared by the entity should be clearly marked ‘PBC’(Prepared by Client) to distinguish them from auditor-prepared documents Auditors mustverify client schedules, documenting checks such as agreeing balances to ledger accounts andcasting totals

4 Standardisation

Audit firms commonly use standard pre-printed documentation, including:

• Audit completion, disclosure, and other checklists

• Engagement, management, representation, and other letters

• Internal control questionnaires

• Audit programs

• Indices for standard organization of working papers

4.1 Advantages of Standardisation

• Provides quality control through a consistent approach

• Enhances efficiency in preparation and review

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• Familiarizes junior staff with standard procedures (e.g., attending inventory counts, ing confirmations)

request-4.2 Disadvantages of Standardisation

• May be inappropriate for clients with unique operations (e.g., subscription income vs salesrevenue)

• Can stifle initiative and professional judgment

• May lead to a mechanical approach, reducing understanding of test objectives

• Standard programs may foster a ‘bare minimum’ attitude

5 Permanent and Current Audit Files

For recurring engagements, documentation is divided into Permanent Audit Files (PAF) andCurrent Audit Files (CAF) General correspondence files are maintained, with specific letters(e.g., engagement, management, representation) filed in the CAF

5.1 Permanent Audit File - Typical Contents

• Legal structure (e.g., Memorandum and Articles of Association)

• Documents of continuing importance:

– Terms of engagement

– Minutes of important meetings

– Debenture deeds

– Mortgages and charges

– Title deeds and lease agreements

– Trade agreements and labor contracts

– Profit share and bonus agreements

– Royalty agreements

• Descriptions of the clients business, locations, and products

• List of investments

• Organization charts, with details for the finance department

• Main accounting records (e.g., handwritten, computerized)

• Previous financial statements and auditors reports

• Previous management reports on accounting system weaknesses

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• Clients professional advisers

• Insurance cover details

• Significant ratios and trends

• Accounting systems descriptions (flowcharts, narratives)

• Internal control evaluation data (questionnaires, checklists)

• Principal accounting policies

5.2 Current Audit File - Typical Contents

• Financial statements (agreed to accounting records, cross-referenced to schedules)

• Overall audit plan (including risk assessments, planning materiality) and audit program

• Schedules for balance sheet items (with comparatives), cross-referenced to external tion

verifica-• Communications with other auditors, experts, or third parties

• Schedules for significant income statement items

• Checklist for statutory and IAS/FRS disclosure compliance

• Record of audit queries and their clearance

• Schedule of unresolved queries for manager/partner review

• Extracts of directors and shareholders meeting minutes

• Management report on material internal control weaknesses

• Management representation letter

• Job administration data:

– Partner and staff employed

– Dates audit areas completed

– Time summaries

– Performance against budget

• Results of tests, system evaluations, control weaknesses, and actions taken

• Schedule of test results and conclusions (indexed, cross-referenced)

• Completed audit program

• Accounts completion checklist

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5.3 For Larger Clients

Current files may be subdivided into ‘interim visit’ and ‘final audit’ files Systems documentationmay be held separately, and specific audit areas (e.g., inventory) may have dedicated files

6 Confidentiality, Safe Custody, Retention, and Ownership

6.1 General Principles

Standards require:

• Maintaining confidentiality and safe custody

• Retaining working papers to meet audit practice and legal requirements

• Auditor ownership, with no client right to access (though extracts may be provided at cretion)

dis-Standards do not specify how to maintain confidentiality, retention periods, or ownership termination Guidance is found in ACCAs Rules of Professional Conduct

de-6.2 Considerations for Retention

• UK: 3 years for private companies, 6 years for others (s 221 Companies Act 1985)

• Limitation Act 1980: 6 years for contract-based actions

• Tax assessments: 6 years post-period

• Stock exchange reporting: 6 prior years

• ACCA recommendation: Minimum 7 years

6.3 Determination of Ownership

Ownership is based on the engagement letter Accounting records and financial statementsbelong to the client, but drafts belong to the auditor unless specified as a client product

6.4 Security of Working Papers

Practical measures include locked fireproof cabinets, physical keys, passwords, and electronicbackups to prevent corruption or loss

The overall audit plan describes the expected scope and conduct, while the audit program details

the nature, timing, and extent of procedures

7.1 Audit Program Features

• Audit objective (e.g., confirming inventory existence)

• Reference to accounting system

• Cross-reference to internal control evaluations

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• Description of tests

• Extent of testing (e.g., sampling population, unit, method)

• Personnel and dates

• Conclusions

8 Documenting Accounting and Internal Control Systems

Documentation techniques include:

1 Narrative Notes: Written descriptions, suited for small, simple systems or peripheral

as-pects (e.g., issuing credit notes)

2 Flowcharts: Visual control representations, varying by firm (e.g., documentation,

informa-tion, overview flowcharts)

3 Questionnaires: Internal control questionnaires (ICQs) to assess system strengths and

weaknesses

The form and extent depend on:

• Entity size and complexity

• Nature of accounting and control systems

• Auditors reliance on controls

• Source (client or auditor)

Client Name of the client

Period Accounting period end

Subject Purpose of the schedule

Sch Ref Schedule reference

Date Dates of preparation and review

9.2 Layout Standards

• Include firm, client, period, and schedule purpose

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• Ensure clarity, completeness, and legibility

• Avoid superfluous information

• File logically with serial references

• Cross-reference to financial statements, other papers, or programs

• Provide a key for audit ticks and symbols

• Document storage details for electronic files

Some firms require ink (not pencil) and prohibit correction fluid

9.3 Indexing

Audit firms use standard indices for PAF and CAF, tailored by circling used references Examplefor CAF:

• A: Audit control papers (A1: Financial statements, A2: Completion checklist, etc.)

• B: Overall audit plan

• R: Wages and salaries

• S: Extended trial balance and adjustments

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9.4 Audit Ticks

Standardized symbols ensure consistency, e.g.:

• β: Agreement of balance to ledger

• ∧: Cast checked and agreed

• c/c: Cross-cast checked and agreed

10 Example of Auditor-Prepared Working Paper

YORK & STONE

Client: Great White Ltd

Period: Year ended 31 March 1999

Subject: Depreciation Reconciliation

Prepared by: [Audit Senior]

Reviewed by: [Manager]

• Year ended 31.3.98 Charge

• Plus: Effect of 1998/99 Additions:

– Factory equipment $33,280× 20% = $6,656

– Delivery vehicles $25,560 × 25% = $6,390

– Cars $15,767× 33.33% = $5,256

– Furniture and fittings $13,762× 10% = $1,376

• Less: Effect of 1998/99 Disposals:

– Factory equipment $14,600× 20% = $2,920

– Delivery vehicles $9,256× 25% = $2,314

– Cars $8,640 × 33.33% = $2,880

– Furniture and fittings $1,699× 10% = $170

11 Audit Records in Information Analysis

In Paper 5 Information Analysis, ‘audit record’ refers to significant transaction data, including:

• User and terminal identifications

• Time and date

• Transaction type (e.g., despatch)

• Quantities and values

• Cross-references to related transactions (e.g., invoice)

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Tracing transactions facilitates testing during system development.

12 Lead Schedules

Lead schedules show how financial

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