Briefly describe the key requirements included In professional auditing standards

regarding the preparation and retention of audit work papers. Which party “own” audit
workpaper the client or the audit firm?

Audit working papers are the documents which record all audit evidence obtained during
financial statements auditing, internal management auditing, information systems auditing, and
investigations. Audit working papers are used to support the audit work done in order to provide
assurance that the audit was performed in accordance with the relevant auditing standards. They
show the audit was:

1. Properly planned;

2. Carried out;

3. There was adequate supervision;

4. That the appropriate review was undertaken; & finally and most importantly

That the evidence is sufficient and appropriate to support the audit opinion. Audit working
papers are the property of the auditor. In order to keep professional ethic, it cannot discover to
third party without consent of the client unless limited specified situations mentioned in ISA 230
Documentation and required by law, the examples are court order, for public interest and so on.
The forms of documentation may be flowchart, manual, narrative note, checklist or
questionnaire.

A good working paper should meet the requirements of ISA 230 by displaying the following
characteristics:

1. It should state a clear audit objective, usually in terms of an audit assertion (for example,
‘to ensure the completeness of trade creditors’).

2. It should fully state the year/period end (eg 31 October 2006), so that the working paper
is not confused with documentation belonging to a different year/period.

3. It should state the full extent of the test (ie how many items were tested and how this
number was determined). This will enable the preparer, and any subsequent reviewers, to
determine the sufficiency of the audit evidence provided by the working paper.

4. Where there is necessary reference to another working paper, the full reference of that
other working paper must be given. A statement that details of testing can be found on
‘another working paper’ is insufficient.

5. The working paper should clearly and objectively state the results of the test, without
bias, and based on the facts documented.
 6. The conclusions reached should be consistent with the results of the test and should be
able to withstand independent scrutiny.

7. The working paper should be clearly referenced so that it can be filed appropriately and
found easily when required at a later date.

8. It should be signed by the person who prepares it so that queries can be directed to the
appropriate person. It should be signed and dated by any person who reviews it, in order
to meet the quality control requirements of the review.

The reviewer of audit working papers should ensure that every paper has these characteristics. If
any relevant characteristic is judged absent, then this should result in an audit review point for
example a comment by the reviewer directing the original preparer to rectify the fault on the
working paper.

Which party “own” audit workpaper is better the audit firm rather than the client. Standard on
Auditing (SA 230) “Audit Documentation” refers to documentation as “the working papers
prepared or obtained by the auditor and retained by him, in connection with the performance of
his audit”. Auditors should prepare and organise their working papers in a manner that helps the
auditor carry out an appropriate audit service. The auditor should avoid preparing or
accumulating unnecessary working papers, and should therefore avoid making extensive copies
of the client’s accounting records.

5. Indentify and list five recommendations that have been made recently to strengthen the
independence audit function. For each of these recommendations, indicate why you support or
do not support the given measure.

The answer:

i) Human Resources.

An auditor may not engage in HR activities relating to management search activities,

psychological or other testing services, negotiating employment terms on behalf of the audit
client or undertaking reference checks.

ii) Scope.

Auditing can be quite specific, wherein which auditors are mandated to carry out specified tasks,
such as only examining only administrative procedures of an organization. Alternatively, the
scope of the audit can be wide-ranging, covering administrative, legal, financial and other
practices, for example, an overall audit of the organization or local authority.

iii) Selection of auditors.

The important factors in choosing auditors include the level of expertise needed, degree of
autonomy and resistance to undue influence. Audits may be carried out by specialised units
within the local authority or government, or by external specialised auditing agencies. Auditors
must also be financially and budgetary independent in accomplishing their tasks.

iv) Audit procedures.

Auditors are also better safeguarded against oversights or abuses by the agency being audited if
audit methods and procedures are standardised. Such standards are available universally and are
meant to provide a framework for performing and promoting value-added audit activities that
improve the operations of agencies/local authorities.

v) Dissemination of audit report.

Audit reports must be made available to stakeholders in the city or community. As stated earlier,
these can help in building accountability and enhancing trust in public agencies, or in reinforcing
the need for change.