Auditing is conducted for the Verification of assets and liabilities. There are various tools of auditing, such as Working papers, Audit evidence, Audit evidence, Audit program, Audit plan, and many more. Audit working papers are used to record the data collected while conducting an audit. They endow with evidence that enough data was acquired by an auditor to aid his or her estimation regarding the core financial statements.
Verification in auditing is conducted to ensure the authenticity of assets and liabilities. Working papers also procure evidence of whether an audit was appropriately planned and administered. They should have adequate information for an auditor who did not conduct an audit to determine the grounds for the opinion given concerning a customer's financial statements.
Types of Certification That May Be Enclosed Within the Working Papers
Checklists of standard inspections stuff that were concluded and by whom
The copies of correspondence
Flowcharts of a user's main transaction processes
Charts of organizations
Questionnaires for which the customer gave answers.
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*It is a sample of a working paper audit.
Verification of Assets and Liabilities
The verification of assets and liabilities engages the consideration of the below-mentioned points-
That each asset or liability is correctly stated in the balance sheet.
That each asset or liability is correctly valued according to the generally accepted valuation norms.
That the assets exist on the date of the balance sheet and are the property of the institution.
That the assets are free from any charge except that is revealed on the balance sheet.
That no assets or liabilities on the date of the balance sheet have been mislaid.
Objects of Verification of Assets and Liabilities
The Verification of assets and liabilities has two main objects:
The propriety of business is recorded.
Articulating an opinion on the financial statements, i.e., whether the balance sheet reproduces a true and fair view of the state of dealings of the company.
Verification in Auditing
Verification means the investigation of stuff appearing in financial statements, whether the stuff is as per the legislation or not. Verification of assets and liabilities are conducted to confirm the following −
Existence
Ownership
Appropriate valuation
Possession
Freedom from nuisance
Proper documentation
Objectives of Verification in Auditing
Following are the objectives of Verification in auditing –
Authentication about the existence of stuff via physical verification.
Legal and official documents concerning stuff are checked to confirm the ownership of stuff.
To confirm that assets are free from any charge or lien.
To get the evidence regarding the proper valuation of assets.
Confirming that assets are properly accounted for in the books of accounts.
The verification of assets and liabilities in auditing notes is aforementioned.
Vouching
Vouching and Verification are considered to be similar, but there are lots of differences between Verification and vouching.
Vouching is proof of the accuracy and authenticity of accounting entries, as shown in the books of accounts, whereas Verification in auditing confirms the existence, possession, and estimation of assets, as shown in the balance sheet. The Auditor's duty is not only to vouch for the entries being shown in the books because vouching cannot confirm the existence of the related asset or liabilities at the balance sheet date.
The Importance of Vouching in Auditing is as Follows
Vouching is the fundamental part of auditing
Vouching is important to check the authenticity of the evidence.
Vouching is the quintessence of auditing.
Difference Between Verification and Vouching
The following are the major difference between Verification and vouching
In vouching, vouchers are checked, which are in support of the accounting entry. Verification means to certify the resemblance of details concerning the assets or liabilities, with those shown in the Balance Sheet.
Vouching is conducted based on documentary evidence, i.e., vouchers, invoices, bills, or statements. On the other hand, deep analysis and documentary evidence are the elements of Verification.
In vouching, items of Income Statement are checked while Verification is done for Balance Sheet items.
Another point of difference between Verification and Vouching is that the former is conducted throughout the year, and the latter one is done at the end of the financial year.
Vouching for aims at checking the correctness, completeness, and authenticity of transactions. On the contrary, Verification emphasizes affirming the ownership, possession, valuation, and revelation of the assets and liabilities.
Hence it is obvious that there are lots of differences between Verification and Vouching.
Did You Know?
Through medieval times, when manual book-keeping was rampant, auditors in Britain used to hear the accounts read out for them and confirmed that the institute's workers were not negligent or fraudulent. Moyer, in 1951 acknowledged that the most important duty of the auditor was to perceive fraud.
The Central Auditing Commission of the Communist Party of the Soviet Union manoeuvred from 1921 to 1990.
FAQs on Tools of Auditing: Working Papers Explained
1. What are audit working papers?
Audit working papers are the set of documents prepared or obtained by an auditor during an audit. They serve as the official record of the audit procedures performed, the relevant audit evidence obtained, and the conclusions the auditor reached. Essentially, they are the proof of the auditor's work and the basis for their final opinion on the financial statements.
2. What is the primary purpose of maintaining audit working papers?
The primary purpose of audit working papers is to support the auditor's opinion in the audit report. They also serve several other important functions:
- Planning and Performance: They assist in the planning, performance, and supervision of the audit.
- Accountability: They provide a record of the work done, making the audit team accountable.
- Future Reference: They are useful for planning future audits and providing information for subsequent reviews.
- Evidence: They serve as crucial evidence of the auditor’s compliance with Auditing Standards in case of any legal dispute.
3. How are audit working papers typically organised for an audit?
Audit working papers are generally organised into two main categories to ensure efficiency and clarity:
- Permanent Audit File: This file contains information of continuing importance relevant to succeeding audits. Examples include the Memorandum and Articles of Association, long-term contracts, details of accounting policies, and past financial statements.
- Current Audit File: This file contains information relating solely to the audit of a single accounting period. Examples include the audit program, trial balance, analyses of transactions and balances, and letters of confirmation.
4. What are some common examples of documents found in audit working papers?
Audit working papers can include a wide variety of documents. Some common examples are:
- An audit programme detailing the planned procedures.
- The client's trial balance and financial statements.
- Analyses and reconciliations of account balances.
- Summaries of significant audit findings.
- Letters of confirmation received from third parties (e.g., banks, debtors).
- Copies of important contracts, agreements, and minutes of meetings.
- Notes on the company's internal control system.
5. How do working papers connect the audit evidence gathered to the final audit report?
Working papers act as a crucial bridge between the raw evidence and the formal audit report. They document the entire thought process. For instance, a working paper might show a bank reconciliation statement (the evidence), notes on discrepancies found (the analysis), and the auditor's conclusion that the bank balance is fairly stated (the judgment). This detailed trail of evidence and analysis directly supports the assertions made in the final, summarised audit report, providing a clear and defensible logic path.
6. Why is the proper organisation and indexing of working papers so critical for an auditor?
Proper organisation and indexing are not just for neatness; they are critical for the integrity and efficiency of the audit. A well-structured set of working papers ensures that:
- The audit work can be easily reviewed by a senior auditor or partner.
- Any team member can quickly locate specific evidence or conclusions.
- It demonstrates a systematic and logical approach to the audit.
- It simplifies the process of preparing the final audit report and makes it easier to defend the audit work if it is ever questioned by regulators or in court.
7. Who legally owns the audit working papers – the client or the auditor?
The audit working papers are the exclusive property of the auditor. The client does not have the right to access them. This is a fundamental principle established to protect the auditor's independence and confidentiality. While the papers contain the client's data, the analysis, procedures, and conclusions documented on them are the professional work product of the auditor.
8. How do working papers help in assessing the quality of an audit?
Working papers are the primary basis for assessing the quality of an audit. During an internal quality review or an external peer review, reviewers examine the working papers to determine if the audit was performed with due professional care. They check if sufficient and appropriate audit evidence was gathered, if significant risks were addressed, and if the conclusions reached are logical and well-supported. Incomplete or poorly prepared working papers can indicate a low-quality audit.
