ICPAK AUDIT MANUAL

3. AUDIT FILES AND WORKING PAPERS (INCORPORATING ISA 230)

3.1. Types of Audit Files

The purpose of this section is to explain how typical audit files should be structured
and what they should contain. Depending on the size of the assignment, it is
recommended that two types of files be maintained, one a current audit file ("CAF")
and the other a permanent audit file (“PAF”).

The distinction between the two files is as follows:

CAF - contains information and audit evidence relating to the accounting period
currently under review, the purpose of which is to support the opinions and
statements made in the audit report.
PAF - contains information of continuing importance which may be updated at
each audit. Such information could be useful background; other information
would include terms of engagement, internal control and accounting
systems notes, and other documents of historical record which are unlikely
to be directly relevant to the current year audit e.g. signed copies of leases
and signed copies of financial statements for prior years.

Form 5.14 - Permanent Audit File Review Checklist should be updated at each
audit to ensure that the file has been updated with current information.

3.2. Layout of Audit Files

All files should follow a standard numerical and alphabetical sequence. This degree
of standardisation of layout is desirable from the points of view of efficiency and
minimising risk. The use of hard section dividers or coloured paper dividers should
be used to clearly distinguish the file sections. Individual working papers should be
numbered and filed logically within a common framework.

Appendix I: Table of Contents of the Current Audit File

Appendix II: Table of Contents of the Permanent Audit File
Part E of the Manual: Audit File Contents (providing standard formats for
working papers, checklists and audit programmes).

3.3. Working Papers Contents

In accordance with IAS 230, the working papers should be sufficiently complete and
detailed to provide an overall understanding of the audit. The working papers should
contain information on planning the audit; the nature, timing, and extent of the audit
procedures performed and the results thereof; and the conclusions drawn from the
audit evidence obtained. They should contain the engagement teams reasoning on
all significant matters which require the exercise of judgement together with the
conclusions thereon. In addition, on areas involving difficult questions of principles
or judgement, the working papers should contain the relevant facts that were known
by the engagement team at the time the conclusions were reached.

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3.3.1. Why Document?

Working papers:
 Assist in the planning and performance of the audit and to enable a
methodical approach to be adopted.
 Assist in the supervision and review of the audit work performed.
 Record audit evidence resulting from the audit work performed to support
the auditor’s opinion.
 Provide details of problems encountered including difficult and contentious
matters, how these were resolved, and conclusions reached.
 Enable an experienced reviewer, unconnected with the audit, to understand
the work performed and the basis of the principal decisions taken, but not
the detailed aspects of the audit.

The use of standardised working papers e.g. checklists, specimen letters and
working papers can improve the efficiency with which working papers are
prepared and reviewed. They facilitate the delegation of work while providing a
means to control quality.

3.3.2. Form and Contents of Working Papers

ISA 230 states that the form and contents of the working papers is affected by
the:
 Nature of the engagement.
 Form of the auditor’s report.
 Nature, size and complexity of the business.
 Nature and complexity of the entity’s internal controls.
 Needs in the particular circumstances for direction, supervision and review
of work performed by assistants.
 Specific audit methodology and technology used in the course of the audit.

The contents should include the following:

 Information obtained in understanding the entity and the environment in
which it operates.
 Evidence of the auditor’s understanding of the accounting and internal
control and assessment of the control environment.
 Evidence of the planning process including audit programmes and changes
thereto.
 Evidence of the auditor’s consideration of the work of the internal audit
function and the conclusions therefrom.
 Analysis of significant trends and ratios.
 Analysis of transactions and balances, including the nature, extent and
timing of the tests.
 Identified and assessed risks of material misstatement at the financial
statement and assertion level.
 Record of the nature, timing and extent of the audit procedures performed
in response to risk at the assertion level and the results of such procedures.
 An indication as to who performed the audit procedures and when they
were performed.
 Evidence that the work performed by assistants was supervised and
reviewed.

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 Correspondence and notes of discussions including engagement letters

and material weaknesses in internal controls.
 Letter of representation.
 Conclusions reached by the engagement team on significant aspects of the
audit, including how exceptions and unusual matters, if any, disclosed by
the audit procedures were resolved.
 Evidence that consultations have been documented and any contentious
issues fully resolved.
 Copies of the financial statements and the auditor’s report.

3.3.3. Preparation of Working Papers

The objective of this section is to guide the engagement team on the

presentation of working papers.

All working papers, except those prepared electronically, should be clean,

neat, legible and prepared in ink. To ensure that working papers are easily
identifiable, they should clearly contain the:
 Client's name
 Subject matter
 Accounting period
 Preparer's initials and the date prepared
 Reviewer's initials and the date reviewed
 Schedule reference (within a sequential indexing system, following the
main schedule references listed on a master index).

The Table of Contents (Appendix I and II) should be updated by cancelling

sections not containing working papers. If this is not done, papers may be
thought to be missing in sections not cancelled.

A lead schedule should be prepared for each audit section which agrees with
the figure or note reflected on the financial statements. The schedule should
include comparative figures; an overall conclusion for the section, if this is not
given elsewhere; and should be cross-referenced to supporting schedules.
Lead schedules must be updated to reflect audit adjustments to the client draft
financial statements.

For each test of transaction and balance carried out, the audit schedule
should normally contain:
 The objective of the test
 The work done
 The method of determining the sample size
 The source of information (if this is not evident from the work performed)
 Audit ticks or symbols used and their explanation
 Cross references to other supporting schedules
 Results of the test
 An evaluation of errors cross referenced to the Summary of Unadjusted
Errors
 Evaluation and reasons for any judgements made and the adequacy of the
disclosure in the financial statements
 The conclusions drawn from results of the test

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 Recommendations or points carried forward, if any.

The above requirements can be regarded as satisfied if some of the

information is summarised or recorded elsewhere and can easily be found by
the reviewer.

Wherever possible, entity should be requested to prepare schedules and other

documentation as this helps utilise the audit time to other areas. The audit
client schedule requirement including the schedule formats should be
communicated to the client in advance. ISA 230 requires that the auditor
satisfies himself that all such materials have been properly prepared by the
client. In addition, such material should be marked as “Prepared by Client”,
together with the date obtained.

File notes should be prepared of all telephone and other conversations with
clients or with third parties, concerning the entity’s affairs. The notes should
record the entity’s name and date of conversation, the persons involved, the
matters discussed and any conclusions reached or action agreed. The note
should be filed in the audit file, and if appropriate, a copy sent to the other party
to confirm the accuracy.

Care should be taken to safeguard working papers and working paper files.
When working at a client’s premises, wherever possible, files should not be left
at the premises overnight. If they have to be left overnight, they must be stored
securely under lock.

3.4. Ownership, Safe Custody and Retention of Working Papers and

Files

ISA 230 requires the auditor to adopt appropriate procedures for maintaining
the confidentiality and safe custody of the working papers and for retaining
them for a period to meet the needs of the practice and in accordance with
the legal and professional requirements of record retention.

The working papers are the property of the auditor. The engagement team
should maintain strict confidentiality of the information obtained during the
course of the audit. In certain cases, the working papers may have to be
availed to third parties where required by law or for quality control reviews. To
protect the firm, the instances where the papers may have to be made
available to third parties must be notified to the client in the engagement
letter.

ICPAK has developed a policy on the retention of working papers which may
be followed by the firm, or the firm may develop an internal policy which must
be consistently followed. The Guideline for Retention of Audit Working
Papers issued by the ICPAK in Technical Release No. 7/2003 recommends
that:
 Audit working papers relating to an engagement which is the subject of an
existing litigation should not be destroyed until the litigation is over and
the judgment thereon settled. If the judgment is not settled, the working
papers should be maintained for at least 12 years from the date of the

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judgment or from the date the action required by the judgment becomes
due.
 Under other circumstances, the working papers should be retained for at
least 8 years after the date of adoption of the financial statements by the
owners, to cater for 6 years required by the Limitation of Actions Act for
actions founded on contracts and an additional 2 years to take into
account the possible period of reliance that could be placed on an
auditor’s report and the initial period for the commencement of legal
proceedings.

No files and working papers should be destroyed without a written authority

of the board of partners or a partner in charge of such responsibility.

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Current Audit File Index
Client: __________________________________________
Period ended: ____________________________________

OBJECTIVE: THE FILE SHOULD CONTAIN IN A LOGICAL MANNER THE EVIDENCE TO

SUPPORT THE OPINION ON THE FINANCIAL STATEMENTS.

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DELETE SECTIONS NOT APPLICABLE 5.06 Analytical review conclusion
5.07 Analytical review working papers
1. Financial Statements and Reports - 5.08 Understanding the entity’s business
Final 5.09 Assessment of internal control
1.01 Signed financial statements 5.10 Risk assessment and approach to
1.02 Management letter with client assessed risk
comments 5.11 Assessment of fraud risk
1.03 Signed letter of representation 5.12 Points brought forward from last year
5.13 Previous year’s management letter
2. Financial Statements and Reports 5.14 Previous year’s approved financial
2.01 Financial statements statements
2.02 Management letter 5.15 Permanent audit file review checklist
2.03 Letter of representation
2.04 Other information to be issued with 6. Trial Balance and Adjustments
financial statements 6.1 Trial balance
6.2 Trial balance audit programme
3. Audit Completion and Review 6.3 Clients draft accounts
3.01 Overall audit conclusion 6.4 Adjusting journal entries
3.02 Calling over checklist
3.03 Partners review notes A. Intangible Assets
3.05 Partners review checklist A.01 Lead schedule
3.05 De-briefing notes A.02 Audit programme
3.06 Consultations and conclusions A.03 Working papers
3.07 Engagement quality control review
notes B. Property, Plant and Equipment
3.08 Engagement quality control review B.01 Lead schedule
checklist B.02 Audit programme
3.09 Matters for partner’s attention B.03 Working papers
3.10 Matters for manager’s / seniors B.04 Test of controls
attention
3.11 Manager’s / senior’s review notes C. Investment Property
3.12 Client meeting agenda / notes C.01 Lead schedule
3.13 Summary of outstanding issues C.02 Audit programme
3.14 Summary of unadjusted errors C.03 Working papers
3.15 Points carried forward to subsequent C.04 Test of controls
audit
D. Investments in Subsidiaries and
4. Checklists Associates
4.01 Subsequent events review D.01 Lead schedule
4.02 Going concern review D.02 Audit programme
4.03 Companies Act checklist D.03 Working papers
4.04 International Financial Reporting D.04 Consolidation adjustments
Standards checklist
4.05 Other checklists E. Other Financial Assets
E.01 Lead schedule
5. Planning and Control E.02 Audit programme
5.01 Audit strategy and plan E.03 Working papers
5.02 Audit planning checklist F.04 Test of controls
5.03 Acceptance of engagement checklists
5.04 Time budgets F. Inventories
5.05 Materiality F.01 Lead schedule
F.02 Audit programme
F.03 Working papers
F.04 Stock attendance M.02 Tax account
F.05 Test of controls M.03 Audit programme
M.04 Working papers
G. Trade and Other Receivables
G.01 Lead schedule - trade receivables N. Deferred Tax
G.02 Lead schedule - other receivables N.01 Deferred tax computation
G.03 Audit programme N.02 Audit programme
G.04 Working papers N.03 Working papers
G.05 Circularisation
G.06 Test of controls O/P. Capital and Reserves
O.01 Lead schedule - share capital
H. Cash and Bank Balances O.02 Lead schedule - reserves
H.01 Lead schedule O.03 Audit programme
H.02 Audit programme O.04 Working papers
H.03 Working papers O.05 Copy of board minutes
H.04 Bank circularisation and cash O.06 Copy of shareholders’ minutes
certificates
H.05 Test of controls Q. Commitments and Contingencies
Q.01 Lead schedule - operating leases
I. Related Party Disclosures Q.02 Lead schedule - capital commitments
I.01 Lead schedule Q.03 Lead schedule - contingencies
I.02 Audit programme Q.04 Audit programme
I.03 Working papers Q.05 Working papers
I.04 Test of controls Q.06 Test of controls
I.05 Circularisation Q.07 Lawyer’s replies

J. Trade and Other Payables R. Directors’ Emoluments and

J.01 Lead schedule - trade payables Transactions
J.02 Lead schedule - other payables and R.01 Lead schedule –
accruals directors’/shareholders’ loan
J.03 Audit programme R.02 Lead schedule - directors’
J.04 Working papers emoluments
J.05 Circularisation R.03 Audit programme
J.06 Test of controls R.04 Working papers

K. Borrowings S. Cash Flow Statement

K.01 Lead schedule - loans S.01 Lead schedule
K.02 Lead schedule - finance leases S.02 Audit programme
K.03 Lead schedule - overdraft
K.04 Audit programme T. Income
K.05 Working papers T.01 Lead schedule - turnover
K.06 Test of controls T.02 Lead schedule - other income
T.03 Audit programme
L. Provisions for Liabilities and T.04 Gross profit analysis
Charges T.05 Working papers
L.01 Lead schedule T.06 Test of controls
L.02 Audit programme
L.03 Working papers
L.04 Test of controls

U. Expenditure
M. Taxation U.01 Lead schedule - cost of sales
M.01 Tax computation U.02 Working papers - cost of sales
M.02 Proof of tax U.03 Lead schedule - direct costs
U.04 Working papers - direct costs
U.05 Lead schedule - employment
expenses
U.06 Working papers - employment
expenses
U.07 Lead schedule - administrative
expenses
U.08 Working papers - administrative
expenses
U.09 Lead schedule - establishment
expenses
U.10 Working papers - establishment
expenses
U.11 Lead schedule - selling and
distribution expenses
U.12 Working papers - selling and
distribution expenses
U.13 Lead schedule - finance costs
U.14 Working papers - finance costs
U.15 Audit programme
U.16 Test of controls
Permanent Audit File Index
Client: _________________________________________
Period ended: ___________________________________
business name, registered office,
company secretary
3.4 Copy of register of charges,
debentures and trust deeds
3.5 Extracts of minutes of continuing
importance
3.6 Correspondence of continuing
importance

DELETE SECTIONS NOT APPLICABLE

1. General Information
1.1 Address (physical, postal,
telephone, fax, e-mail) and branch 4. Audit Information
network 4.1 Engagement letter and subsequent
1.2 Organisation chart and details of written instructions
principal contacts 4.2 Client acceptance questionnaire
1.3 Principal and secondary activities 4.3 Letter(s) of authority to
and nature of income streams bankers/other third parties
4.4 Bank mandates and specimen
1.4 Market standing and relevant signatures
industry statistics and benchmarks
1.5 Professional advisers 5. Legal Agreements
1.6 Related party information 5.1 Property titles
1.7 Knowledge of client’s business and 5.2 Assets leased to third parties
documentation of the accounting (including hire purchase)
and internal control 5.3 Assets leased from third parties
1.8 Understanding the client’s (including hire purchase)
governance and internal audit 5.4 Patents and other intangible assets
functions 5.5 Directors' service agreements
1.9 Summary of key accounting 5.6 Guarantees, indemnities and other
policies contingent liabilities
1.10 Copies of management letters 5.7 Pension fund deeds and rules
5.8 Other contracts and agreements
2. Memorandum and Articles of
Association, Special 6. Group Information
Resolutions, Partnership 6.1 Brief history of the development of
Agreement and Other Legal the group
Documents 6.2 Group structure (details of holding
company, subsidiaries and
3. Statutory and Other Information associates)
3.1 Brief history of the business 6.3 Details of group auditors
3.2 Capital structure, employee share 6.4 Nominee shareholdings/letters of
schemes, substantial shareholders, trust
history of reserves 6.5 Permanent consolidation
3.3 Accounting reference date, adjustments
certificate of incorporation, 6.6 Group accounting/auditing
requirements

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Permanent Audit File Index
Client: _________________________________________
Period ended: ___________________________________

NOTE
Superseded information should be
transferred to the current year’s Audit File.

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