Audit Program: Key Areas, Working Papers, and Objectives
Key Areas in Audit Program Preparation
When preparing an audit program, auditors should pay close attention to several key areas:
- Hotspots: These areas are particularly sensitive to errors and can vary between companies (e.g., foreign currency balances, loans to directors).
- Significant Areas: These are important due to the amount of interest they generate for users of accounting data. They are often common among companies in the same industry (e.g., fixed assets, sales, and stocks).
- Additional Areas: These areas are of high interest to the company and, while potentially unimportant to the auditor, should not be ignored.
Definition of Working Papers
Working papers are records prepared by the auditor to document the work performed, information collected, and testing procedures used, along with the conclusions reached. They serve as supporting documentation for all actions taken by the auditor.
Objectives of Audit Working Papers
The basic objectives of audit working papers are:
- Collecting evidence from the implementation of the work and the means by which the auditor has come to form an opinion.
- Assisting in the supervisory work of the audit team.
- Aiding the auditor in carrying out their work.
- Systematizing and developing future audits through experience.
- Enabling experienced individuals to oversee the legal actions taken.
- Testing the quality of work.
Characteristics of Effective Working Papers
Working papers must be sufficiently clear to allow an auditor with no prior knowledge of the audit to follow the work and verify that the audit was conducted according to technical standards. Effective working papers should be:
- Full: Comprehensive and complete.
- Clear: Easy to understand and unambiguous.
- Concise: To the point and avoiding unnecessary detail.
Clarity in Working Papers
Clear working papers should allow an auditor who did not perform the work to understand it and draw valid conclusions. While clarity can vary based on the preparer, certain minimum requirements must be met:
- Spell Checking and Language: Legible writing, understandable language, appropriate explanations, and a lack of ambiguity or excessive information.
- Consistency: Uniform appearance and size, highlighting important texts.
- Correct Nouns: Accurate use of names for people, companies, places, brands, etc.
- Reference System: Simple and small references with appropriate explanations.
Types of Worksheets
Worksheets are categorized as base, summary, and detail:
- Base Worksheets: These collect the summary of all accounts in an area or section and serve to bring together all areas of the balance sheet and income statement.
- Summary Worksheets: These display the composition of each account within an area or section and support base worksheets.
- Detail Worksheets: These provide specific details supporting summary worksheets.
Worksheet References
Worksheet references use alphanumeric characters to sort the working papers, providing management, filing, and linking data between worksheets. Tildes or ticks are symbols used to document the work and explain the material considered.
File Types
- General File: A consistent set of documentation containing information on the audited financial statements for the year in question.
- Permanent File: A coherent set of documents containing information of permanent interest, which may have implications in subsequent audits.