Audit working-papers

audit working papers

1. 8/31/14 1 AUDIT WORKING PAPERS ATTY. RHENEIR P. MORA, CPA MANAGING PARTNER R. P. MORA & CO.

2. Outline Purposes and Uses of Working Papers Working Papers Includes Permanent File Index Current File Index Audit Documentation Matters Affecting the Form & Content of Working Papers Types of Audit Evidence

3. 8/31/14 3 Purposes and Uses of Working Papers Serve as basic tools to assist the auditor in the conduct of the audit. Support the auditor’s opinion on the financial statements. Substantiate the competence of the auditor’s examination. Serve as guides in subsequent audits. Aid in giving advice on tax and business matters Provide a basis for evaluation of staff members’ performance.

4. 8/31/14 4 WORKING PAPERS ORDINARILY INCLUDE: Information concerning the legal and organizational structure of the entity. Extracts or copies of important legal documents, agreements and minutes. Information concerning the industry, economic environment and legislative environment within which the entity operates.

5. 8/31/14 5 Evidence of the planning process including audit programs and any changes thereto. Evidence of the auditor’s understanding of the accounting and internal control systems. Evidence of inherent and control risk assessments and any revisions thereof. Evidence of the auditor’s consideration of the work of internal auditing and conclusions reached. Analyses of transactions and balances.

6. 8/31/14 6 Analyses of significant ratios and trends. A record of the nature, timing and extent of audit procedures performed and the results of such procedures. Evidence that the work performed by assistants was supervised and reviewed. An indication as to who performed the audit procedures and when they were performed. Details of procedures applied regarding components of business whose financial statements are audited by another auditor.

7. 8/31/14 7 Copies of communications with other auditors, experts and other third parties. Letters of representation received from the entity. Conclusions reached by the auditor concerning significant aspects of the audit, including how exceptions and unusual matters, if any, disclosed by the auditor’s procedures were resolved or treated. Copies of the financial statements and auditor’s report.

8. 8/31/14 8 Permanent File Index Information About the Client’s Business Internal Control System Documentation Organization and Equity Capital Articles of Incorporation By-Laws Minutes or Resolution of Continuing Interest

9. 8/31/14 9 Permanent File Index (Cont.) Financing and Other Significant Agreements and Contracts Bank and Other Financing Agreement Bond Indentures, Mortgages and Trust Agreements Other Information of Continuing Relevance Certificates of Registration with Gov’t. or Regulatory Bodies Tax Information

10. 8/31/14 10 Current Index File Auditor’s Report, Financial Statements and General Matters Planning and Administration PA Initial Planning Audit Program PA1 Initial Planning Memorandum Compliance Test Documentation

11. 8/31/14 11 Current Index File (Cont.) Substantive Tests WORKING TRIAL BALANCES AND ADJUSTMENTS ST Substantive Test Program Summary WBS Working Balance Sheet WPL Working Profit and Loss TB Trial Balance AJE/RJE Summary of Adjusting/Reclassifying Journal Entries PJE Summary of Passed Journal Entries

12. 8/31/14 12 Current Index File (Cont.) ASSETS (Single Capital Letters) A Cash B Trade Receivables C Other Receivables D Inventories E Prepayments F Investments G Property, Plant and Equipment H Deferred Charges I Intangible Assets J Other Assets

13. 8/31/14 13 Current Index File (Cont.) LIABILITIES (Double Capital Letters) AA Notes Payable and Bank Loans BB Accounts Payable CC Acceptances Payable and Related Accounts DD Accrued Liabilities EE Income Taxes FF Other Current Liabilities GG Long-Term Debt HH Other Non-Current Liabilities II Contingent Liabilities and Commitments JJ Stockholders’, Partners’ or Proprietor’s Equity KK Retained Earnings

14. 8/31/14 14 Current Index File (Cont.) INCOME AND EXPENSES (Two-Digit Numbers) 10 Sales 20 Cost of Sales 30 Selling Expenses 40 Administrative Expenses 50 (60 or 70) Other Groupings of Expense Accounts 80 Other Income or Expenses

15. 8/31/14 15 PSA 210 ON AUDIT DOCUMENTATION Section 2. The auditor should document matters which are important in providing evidence to support the audit opinion and evidence that the audit was carried out in accordance with Philippine Standards on Auditing. Section 5. The auditor should prepare working papers which are sufficiently complete and detailed to provide an overall understanding of the audit.

16. 8/31/14 16 Matters Affecting the Form and Contents of Working Papers Nature of the engagement. Form of the auditor’s report. Nature and complexity of the business. Nature and condition of the entity’s accounting and internal control systems. Need 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.

17. 8/31/14 17 Types of Audit Evidence Physical Examination Third-Party Statements or Confirmation Client Statements or Representations Authoritative Documentations Observation Clerical Accuracy Comparison & Data Relationships

18. 8/31/14 18 PHYSICAL EXAMINATION Description Of General Auditing Procedures COUNTING OF INVENTORY, CASH, SECURITIES, UNMATURED PROMISSORY NOTES - To establish existence and, where applicable, ownership and condition of assets

19. 8/31/14 19 THIRD-PARTY STATEMENTS OR CONFIRMATIONS OBTAINING CONFIRMATION DIRECTLY OR DETAILS OF ACCOUNT BALANCES To verify validity and accuracy of balances and other information with outside parties.

20. 8/31/14 20 CLIENT STATEMENTS OR REPRESENTATIONS OBTAINING CLIENTS REPRESENTATION LETTER, EXPLANATIONS TO MANY DIVERSE QUESTIONS RAISED DURING THE AUDIT To obtain knowledge and understanding about the client and its circumstances.

21. 8/31/14 21 AUTHORITATIVE DOCUMENTATION EXAMINING (OR VOUCHING) PAID CHECKS, VENDORS PRUCHASE ORDERS, RECEIVING REPORTS, TITLES, CONTRACTS AND OTHER DOCUMENTARY MATERIALS. - To verify the validity and propriety of accounting treatment of transactions and account balances and compliance with internal controls.

22. 8/31/14 22 OBSERVATION OBSERVING THE TAKING OF PHYSICAL INVENTORIES BY CLIENT PERSONNEL OR THE ACTUAL OPERATION OF INTERNAL CONTROL - To determine compliance with prescribed procedures.

23. 8/31/14 23 CLERICAL ACCURACY RECHECKING CLERICAL DETERMINATION BY CLIENT - To verify the accuracy of computations and transfers of information made by client.

24. 8/31/14 24 COMPARISON AND DATA RELATIONSHIPS COMPARING CURRENT PERIOD ACCOUNT BALANCES OR OPERATING DATA WITH SIMILAR INFORMATION FOR PRIOR PERIODS AND INVESTIGATING UNUSUAL DATA RELATIONSHIPS. -To disclose and determine the reasons for significant changes.

25. Working Paper Organization Chart Continuing Audit File Current Working Paper File Risk Assessment & Planning Job Administration Work Of Others Lead Schedules & Substantive Work Financial Reporting Transaction Processing Cycles Transaction Processing Cycles Evidential Matter (Test of Controls) Assets Liabilities & Equity Profit & Loss Financial Reporting Working Trial Balances Lead Schedules and Substantive Work Lead Schedules Detail Schedules and Memoranda Account Level Evidential Matter (Substantive Testing)

26. B-10 B-9 2-1 B-9 2 B-9 1 B-9 B-5 2/2 B-5 1/2 B-1 Indexing B ABC Corporation Receivable Lead Schedule Audit: 12-31-2005 If there are two or more pages comprising a given schedule, the pages are marked to indicate both the particular page and the number of total pages (see B-5 above). Detailed work of an account balance could be supported by several tiers of supporting schedules using fractional indexing (see B-9 above)

27. 2003 2004 _ Balance Beginning of Year P130,089 P151,691 Write-offs ( 71,087) ( 62,439) Provision 92,689 83,994_ Balance End of Year P151,691 P173,246 ========= ========= Examples ANAK NG JUETENG, INC. Analysis of Reserved for Doubtful Accounts Audit: 12-31-04 B-9 PBC DETAIL OF CURRENT WRITE-OFF Date Customer Amount _ 4-21-04 Lion King P 25,081 4-29-04 Jose Pedal 5,377 5-18-04 Atty. Ong 17,341 5-20-04 Sec. Bunye – Original 10,093 Various amounts under P1,000 4,547_ 2004 Write-Offs P 62,439 ========== Examined write-off form approved by the controller noting agreement of date, customer and amount all write-offs over P1,000. Accumulated write-offs under P1,000 from detail maintained by the credit manager noting agreement. Traced to Prior Year Audit Working Papers noting agreement. Footed by QCB & Co. and agrees. 1 1 2 2 B B

28. Examples ANAK NG JUETENG, INC. List of Outstanding Checks Audit: 12-31-04 A-4 PBC Amount _ P 991.90 15,000.00 2,001.03 12,576.13 2,790.29 1,745.75 8,941.86 49,810.73 15,439.75 4,989.51 5,533.64 P122,410.43 ========== Examined cancelled checks returned by bank together with the December 2005 bank statement, noted in order. Examined check register and noted that these were not acknowledged received by the payee in December 2004. Footed by QCB & Co. and agrees. P25,962.90 ========= Reviewed the list of outstanding checks noting no unusual or significant items except for & as discussed below. NOTE 1> A B B A Per review of the vendor invoices and receiving reports, this check is for lumber and supplies purchased for the additions to the building site. See extracts from the board of directors meeting minutes at XX for further discussion. B Per discussion with Gen. Garcia, Comptroller, these checks dated 12/30/04 were not released to the vendors until 1/2/05 as all authorized check signers were on vacation. Based on the dates these checks cleared the bank per our review on the January 2005 bank statement, this explanation is reasonable. Thus the following adjustment is proposed to properly state cash and accounts payable at 12/31/04: PAJE <1> Cash P25,962.90 Accounts Payable P25,962.90