AUDIT WORKING PAPER

AUDIT WORKING PAPER

This are materials and documents created and prepared by the auditor during the course of the audit which normally serves as audit evidence supporting the opinion to be expressed on the financial statement audited. Audit working papers are solely prepared by the auditor e.g. photocopies or receipt notes etc. Purpose

1.     It serves as audit evidence, supporting the audit work done,

2.     Audit working paper helps to clarify the auditors thinking

3.     It helps to train the audit staff.

4.     It provides a permanent record of the problems encountered during the course of audit.

5.     It enables the audit partners to satisfy themselves, that the audit work has been properly executed.

CONTENTS

1.     Copies of both past and present audited financial statement

2.     Copies of memorandum and article of association.

3.     Copies of organization structure

4.     Records of the terms of the audit engagement,

5.     Copies of audit planning memorandum

6.     Copies of queries rose during the Course of audit and the reply to those queries

7.     Document relating to the test carried out during the course of audit e.g. circularization letter to debtor and creditors, letters to lawyer and their various reply.

8.     A copy 'of representation and management letter

OWNERSHIP CUSTODY OF WORKING PAPER

Since audit working papers are created by the auditor therefore they are owned by the auditor aid tie working papers are to be retained permanently by audit/3

Where there is a change of audit engagement and the incoming auditor requires the working papers the outgoing auditor must take clearance from the client before the working papers can be released to the incoming auditor because of principles of confidentiality.

QUALITY OF A GOOD WORKING PAPER

1.     Simple and clear

2.     It must be in agreement with financial statement

3.     It must be in agreement with the audit programme

4.     It must be able to support the auditor opinion

Example

This is normally created by the auditor where all audit working papers are kept for documentary. In order to split audit working paper between two files one containing those working papers relating to the period under review and one containing those papers likely to the required from period to period.

LETTER OF ENGAGEMENT

Before commencing, any professional work and auditor must sign an undertaking in form of letter of engagement.

Definition: Letter of 'engagement is a written agreement sent by the auditor to his alient» clearly defining the precise scope and nature of the work to be undertaken.

Purpose

The objectives of letter of engagement are summarized below;

        i.            To defined clearly the extent of the auditors responsibilities

      ii.            To minimize misunderstandings between auditor firm and client

    iii.            To confirm in writing verbal arrangements.

   iv.            To confirm acceptance by the auditor of his engagement

     v.            To inform and educate the client

   vi.            To set out basis on which fees will be charged.

 vii.            To emphasize that the primary object of an audit is not to discover or prevent fraud or error.

viii.             Unless the term of the engagement are agreed in writing there may be an implied contract arising out of articles of association contract may not be to the auditors liking.

WHO TO SEND A LETTER

1.     To a new client before any professional work has been started.

2.     To all existing clients who have not previously had such letter

3.     Wherever there is a change of circumstances (e.g. extra duties, a significant new auditing guideline or major change in ownership of management). The engagement letter should be reviewed every year to see if there is a need for a revised letter.

4.     In the case of groups, an engagement letter should be sent to each member company of the group that is to be audited by the firm.

PRINCIPAL CONTENTS

The letter should outline the client's statutory duties (e.g. accounting) and auditor statutory (&.g. report) and professional (e.g. follow the auditing standards responsibilities in addition to above.

a.     The scope of the auditors work should be outlined.

b.     That the functions of an auditor are distinct from the provision of accountancy and other services.

c.      That it is not the main purpose of an audit to discover defalcations and irregularities and that an audit should therefore not be relied on for that purpose.

LETTER OF WEAKNESS

The term is sometimes called management letter or internal control letters, letter of weakness, post audit letter, letter of comment, letter of recommendation, or follow-up letter.

Definition: Letter of weakness is a letter by auditors to management reporting on some matters, which come to their attention during the audit to assist the management on weakness of internal control and, also of quality of record in areas where internal control is weak. His is to know or report on whether or not the records are reliable and errors or frauds have been committed.

This is in no way a substitute for qualified audit report the practice of issuing such a report now serves to be universal.

Purpose:

The purposes of objective of letter of weakness are follows:

1.     To enable the audit to give his comments or the accounting records system and controls.

2.     To enable the auditor to bring to the attention o management areas of weakness that might lead to material error.

3.     In some audit engagement there is requirement to make a report.

4.     To enable the auditor to communicate matter that may have an impact on failure audit.

5.     To enable the management put right matters that may otherwise have lead to audit report qualification.

6.     To enable the auditor to point out areas where management could be more efficient or more effective or where economics could be made or resources used more effectively. E.g. point out that surplus fund should be invested on short-term investment.

Procedure

        i.            Discuss verbally the weakness of internal control with the client.

      ii.            Give recommendation in the letter

    iii.            Follow up at the next visit to client.

Timing

It is send after interim or final audit

Contents

1.     A note of the purpose of the letter

2.     A note of the purpose of the internal control investigation

3.     A disclaimer: this is simply a statement that the auditor investigation cannot be expected disclose every weakness that exist.

4.     A list of weakness material and less material weakness should be distinguished.

5.     Recommendation for improvement

6.     A request that the directors keep the auditor informed of all remedial action they have taken and of all changes in internal control procedures.