The evidence and the work papers constitute the fundamental support of the findings detected by the auditor, hence the importance of the sufficiency, relevance and competence of the evidence as well as the quality and clarity of the Work Papers, taking into account that the Information collected here is always written to third parties who are customers of our service.
In this article we present the importance of both elements, their requirements, their purposes and the most important elements to take into account in their preparation so that they demonstrate the auditor's statements.
Evidence
They include all influences from the mind of an auditor that affect his judgment about the accuracy of propositions submitted to him for review.
The auditor does not seek absolute proof. It is in accordance with the requirements of the engagement, assuring a responsible and competent person of the reasonableness of the financial statements of the management and / or the adequacy of the activities of the Internal Control.
Sufficient, competent and relevant evidence must be obtained to support the judgments and conclusions made by the auditor.
The evidences are classified into:
- Physical evidence: it is obtained through inspection and direct observation of activities, assets or events; This evidence may be presented in the form of documents, photographs, graphs, charts, maps, or material samples. When physical evidence is decisive in achieving the objectives of Internal Audit, it must be adequately and timely confirmed by internal auditors. Documentary evidence: it can be physical or electronic. They can be external or internal to the organization.
External evidence includes, among others, letters, supplier invoices, contracts, external audits and other reports or opinions and confirmations from third parties.
Internal evidence originates from the organization, including but not limited to accounting records, correspondence sent, job descriptions, plans, budgets, internal reports, internal policies and procedures.
The reliability of documentary evidence has to be assessed in relation to the objectives of the Internal Audit.
- Testimonial evidence: Obtained from other people in the form of statements made in the course of investigations or interviews.
These statements can provide important clues that cannot always be obtained through other forms of work in internal audits.
Confirmation is required if they are to be used as evidence, by:
- written confirmation of the interviewee;
- the analysis of multiple independent sources that reveal or explain the analyzed facts; and
- subsequent verification in the documents.
- Analytical evidence: it arises from the analysis and verification of the data.
The analysis can be performed on calculations, performance indicators and trends reported in the organization's financial or other reports or other sources that can be used.
Comparisons can also be made with mandatory standards or levels of the sector to which the organization belongs.
- Computer evidence: can be found in data, application systems, facilities and supports, technologies and computer personnel. To determine the reliability of computer evidence, the Internal Auditor:
- may carry out a review of the general controls of the automated systems and those specifically related to their applications, including all tests that are allowed; and
- if you do not review the general controls and those related to the applications or find that these controls are not reliable, you can practice additional tests or use other procedures
The basic requirements of the evidence are related to sufficiency, competence and relevance.
The evidence is sufficient when, by the results of the application of one or more tests, the internal auditor can acquire reasonable certainty that the disclosed facts are satisfactorily verified.
Sufficiency is the measure of the number of tests, verifications or verifications to be carried out, with respect to certain criteria and their reliability.
The factors that indicate the strength of the tests, verifications or verifications to be carried out may be linked, among others, to:
- level of importance of the matter to check; degree of risk associated with adopting a wrong conclusion; results shown in the Single File; and sensitivity of the organization to the matter to check.
Competition refers to the fact that the evidence must be valid and reliable. The internal auditor should carefully consider whether there are reasons to doubt the validity and completeness of the evidence.
If so, you must obtain additional evidence or disclose that situation as a limitation on the scope of the Internal Audit. The validity, reliability and integrity of the evidence can be evaluated taking into account the following factors:
- the evidence obtained from external sources is more reliable than that obtained from the organization itself; the evidence obtained when an adequate internal control system has been established is more reliable than that obtained when the internal control system is deficient or not established; evidence obtained physically by examination, observation, calculation, or inspection is more reliable than that obtained indirectly; original documents are more reliable than copies; oral evidence verified in writing is more reliable than oral evidence; and the testimonial evidence obtained in circumstances that allow the person to express themselves freely deserves more credit than that obtained in compromising circumstances.
The relevance of the evidence refers to the relationship between the evidence and its use. The information used to demonstrate or refute a fact is relevant if it is clearly and logically related to that fact.
It is also closely related to the objectives established in the Internal Audit and the direct and clear link that must exist between them and the analyzed evidence.
The criteria that act on the sufficiency, competence and relevance of the evidence to be obtained and, consequently, on the performance of the work of the internal auditors, are those of Relative Importance and Probable Risk.
The identification of the level of Relative Importance and probable Risk by the internal auditors is a matter of professional judgment, which can be determined taking into account, among others, the following questions:
- the sensitivity, the strategic or national interest, the social impact of the organization's products, services, activities or operations; applicable legal and regulatory requirements; the consideration of issues such as the attitude, aptitude, authority and responsibility of the leaders and other staff; They necessarily involve considerations related to the quality (nature) and quantity (amount) of the evidence examined in relation to the objectives established in the Internal Audit.
Work papers
The basis of an auditor's opinion on the financial statements is the review that is performed in accordance with generally accepted auditing standards.
Labor standards require that sufficient, competent and relevant evidence be obtained through inspection, observation, investigation and confirmation as the basis of the auditor's opinion.
Therefore, the auditor's opinion depends on obtaining and evaluating sufficient, competent and relevant evidence.
The study of the statements of the administration and the essential characteristics to consider the data and information valid as audit evidence. The various types of evidence available in support of management's statements are evaluated for their reliability, relevance, and other essential characteristics.
These are the different techniques used by the auditors to obtain the audit evidence, which will be documented in the audit procedures with the revised information, in the form of working papers.
Records of the different types of evidence accumulated by the auditor are known as working papers.
Whatever the form of the evidence and whatever the methods used to obtain it, some form of recording should be made and maintained in the working papers.
The work papers are records kept by the auditor of the applied procedures such as developed tests, information obtained and pertinent conclusions reached on the job.
Some examples of working papers are audit schedules, reviews, memoranda, confirmation and declaration letters, summaries of entity documents, and papers prepared or obtained by the auditor.
Working papers can also obtain the form of information stored on tapes, films or other media.
The exact format of the working papers varies with the size, complexity and circumstances of each audit engagement.
In addition, each auditor, or Audit Management Unit, generally has certain preferences for the exact manner in which working papers should be prepared.
The beginning auditor receives instructions in formal training sessions or from the supervisor on the job. This Document refers above all to the general aspects of the work papers, and should be considered as a guide for the work, in which we can consult and adapt to the conditions and characteristics of each ordered job and not necessarily as a model that must adopt.
The working papers (paper, audiovisual or digital format) constitute the link between the planning and execution work and the report that is prepared. Therefore, they must contain the necessary evidence to support the findings, conclusions and recommendations presented in the report.
The main requirements to take into account are:
- express the objectives, scope, methodology and results of the Internal Audit; include those programs that are required to be specifically drawn up for the execution of the Internal Audit; be complete and accurate so as to duly support the findings, conclusions and recommendations; and demonstrate the nature and scope of the work performed. Concision is important, but clarity and integrity should not be sacrificed for the sole purpose of saving time or paper; clear enough, understandable and detailed so that a third party, who has not had a direct relationship with Internal Audit, is able to substantiate the conclusions and recommendations, through their review. They should not require oral explanations; be legible and orderly,otherwise they could lose their value as evidence. They must contain suitable indexes and references; contain the identification of the meaning of the revision marks used by the Internal Auditors, in those cases where they are not centrally established; and contain relevant information, that is, limit itself to matters that are pertinent and important to fulfill the objectives of the entrusted work. Each level must establish procedures to guarantee that the work papers are safeguarded and preserved during the time established by the Law. In the course of said term, a new Internal Audit has not been executed, the working papers must be kept until it is executed, at which time it will be analyzed whether or not to keep all or part of them.They must contain suitable indexes and references; contain the identification of the meaning of the revision marks used by the Internal Auditors, in those cases where they are not centrally established; and contain relevant information, that is, limit itself to matters that are pertinent and important to fulfill the objectives of the entrusted work. Each level must establish procedures to guarantee that the work papers are safeguarded and preserved during the time established by the Law. In the course of said term, a new Internal Audit has not been executed, the working papers must be kept until it is executed, at which time it will be analyzed whether or not to keep all or part of them.They must contain suitable indexes and references; contain the identification of the meaning of the revision marks used by the Internal Auditors, in those cases where they are not centrally established; and contain relevant information, that is, limit itself to matters that are pertinent and important to fulfill the objectives of the entrusted work. Each level must establish procedures to guarantee that the work papers are safeguarded and preserved during the time established by the Law. In the course of said term, a new Internal Audit has not been executed, the working papers must be kept until it is executed, at which time it will be analyzed whether or not to keep all or part of them.contain the identification of the meaning of the revision marks used by the Internal Auditors, in those cases where they are not centrally established; and contain relevant information, that is, limit itself to matters that are pertinent and important to fulfill the objectives of the entrusted work. Each level must establish procedures to guarantee that the work papers are safeguarded and preserved during the time established by the Law. In the course of said term, a new Internal Audit has not been executed, the working papers must be kept until it is executed, at which time it will be analyzed whether or not to keep all or part of them.contain the identification of the meaning of the revision marks used by the Internal Auditors, in those cases where they are not centrally established; and contain relevant information, that is, limit itself to matters that are pertinent and important to fulfill the objectives of the entrusted work. Each level must establish procedures to guarantee that the work papers are safeguarded and preserved during the time established by the Law. In the course of said term, a new Internal Audit has not been executed, the working papers must be kept until it is executed, at which time it will be analyzed whether or not to keep all or part of them.in cases where they are not centrally established; and contain relevant information, that is, limit itself to matters that are pertinent and important to fulfill the objectives of the entrusted work. Each level must establish procedures to guarantee that the work papers are safeguarded and preserved during the time established by the Law. In the course of said term, a new Internal Audit has not been executed, the working papers must be kept until it is executed, at which time it will be analyzed whether or not to keep all or part of them.in cases where they are not centrally established; and contain relevant information, that is, limit itself to matters that are pertinent and important to fulfill the objectives of the entrusted work. Each level must establish procedures to guarantee that the work papers are safeguarded and preserved during the time established by the Law. In the course of said term, a new Internal Audit has not been executed, the working papers must be kept until it is executed, at which time it will be analyzed whether or not to keep all or part of them.Each level must establish procedures to guarantee that the working papers are safeguarded and kept for the time established by the Law. If a new Internal Audit has not been carried out during said term, the working papers must be kept until it is completed. run, opportunity in which the convenience of keeping or not all or a part of these will be analyzed.Each level must establish procedures to guarantee that the working papers are safeguarded and kept for the time established by the Law. If a new Internal Audit has not been carried out during said term, the working papers must be kept until it is completed. run, opportunity in which the convenience of keeping or not all or a part of these will be analyzed.
Purposes of working papers
As an accumulation of all the evidence obtained during the course of the audit, the working papers have several functions. The main purposes of these are:
- Help organize and coordinate the many phases of the audit review. Provide information to be included in the audit report. Serve as support for the auditor's opinion.
The working papers also serve as evidence in case of legal claims, source of information for future declarations and other specialized reports requested by other competition bodies and as a guide for subsequent audit reviews.
Organization and coordination of the audit examination
Working papers are a means of organizing and coordinating the different phases of the audit as they are carried out.
During the audit of a large entity, assistants can be assigned to the different stages of the review.
The working papers serve to assure the auditor in charge that all stages of the examination have been completed, so it is necessary to complete the examination, upon verification of the examination carried out.
Auditors are often unable to complete an entire phase of the audit at one time, and working papers record completed work to the point where it was interrupted so that they know where to continue their work, either by the auditor himself or by another if the situation presented so requires.
In addition, they must always be in a position to be presented before supervision or analysis before the auditee.
Information to include in the audit report
The working papers provide the information to be included in the auditor's report. The audit file is made up of the financial statements, accompanying notes and the auditor's opinion, shown in each working paper.
The evidence in all its various forms constitutes the basis for the report, which is also filed in the File, with all the work papers prepared during the course of the Audit.
If a special report is required, provided by the Public Administration Bodies, data for any additional process, the examinations, findings, comments on noncompliance and recommendations are contained in the working papers.
Support for the auditor's opinion
The ultimate objective of an audit is the expression of the auditor's opinion. The working papers serve to back it up.
By signing the report, the auditor states that the review was carried out in accordance with generally accepted auditing standards.
The working papers should contain evidence that the work was properly planned and that it was based on the review of internal controls, that the Auditors or Assistants were properly supervised, and that sufficient competent evidence was reviewed.
The auditor is also affirming that the financial statements reasonably present the entity's situation, if it is a Financial Audit, and the results of operations in accordance with generally accepted accounting principles.
The working papers must contain evidence that all the important information in the statements was reviewed to determine that they reasonably present what has actually happened within the entity.
In a large Unit of Auditors, the Director or Chief, who is responsible for the audit, rests with the supervisors, chiefs, Auditors and assistants, to carry out most of the phases of the review.
The work papers should contain evidence of the work done and the conclusions each of these people reached, and also evidence that the work at each level was appropriately reviewed by the immediate supervisor.
Legal evidence
Working papers are a form of evidence that can be used in legal action.
Auditors may need to use working papers to support their claim that they conducted the audit in a professional manner, that they exercised due care and were not negligent in conducting the review.
In reviewing the working papers prepared by the auditors, the Group Lead Auditor should ask at each level whether any of the information that appears there or whether the absence of any information could be used to attack the job competition at some later time. perhaps those people are not available to offer further clarification.
There should be no conflicting statements in the working papers, and any final conclusion that runs contrary to other evidence must be fully justified.
In all doubtful matters there must be the proper explanation for the conclusion reached.
Specialized reports
Another function of the working papers is to provide the necessary information for the preparation of reports to the administration on the adequacy of internal controls, or for the preparation of statements or reports to other government bodies.
Sometimes auditees need information from working papers for the reports they prepare themselves, or they may need information because their original records have been destroyed.
Guide for subsequent audits
Usually, the auditor should review in the entity's file the work papers of the previous audit to carry out the current review.
The work papers of the previous audit indicate the difficulties encountered and the solution that was given. Thus, the auditor is alert to the possibility of encountering a similar situation today.
In addition, from the previous audit the auditor should be familiar with the description of the accounting system and controls, in order to be aware of changes that occur during the year and to make the necessary modifications to the audit program.
There is great danger in following too closely the working papers of the previous audit.
The auditor will benefit from viewing the format of a particular analysis from the previous time, but should only use that same format if it is appropriate for the current situation.
Duplication of the audit steps outlined in the previous work papers may very well result in unnecessary and inappropriate steps, as well as the omission of some fundamental procedures for proper auditing of current activities and events.
Ownership of working papers
The working papers prepared by the auditors are their property and the information they contain is generally considered confidential. Usually before giving information that appears in the work papers, the auditor obtains the consent of the auditee.
If you receive a subpoena or injunction asking for information from the work papers, the auditor must deliver it.
The auditor may also find it necessary to disclose some information even against the client's wishes in order to comply with auditing standards, as is the case in cases where facts that existed at the date of the auditor's report are subsequently discovered.
It is difficult to establish how long an auditor should keep working papers. You should retain them as they are important for subsequent audits and to meet any legal requirements. You must comply with the regulations that exist.
Types of working papers
Since working papers are the means of accumulating all the evidence the auditor needs to issue a professional opinion, the types of working papers necessarily have to be quite varied.
Some working papers follow a standard format, while others are a simple memorandum from a discussion that took place regarding the audit review.
The main types of work papers are:
- audit plans, worksheet and adjustment entries, detail sheets, prepared to group accounts of a subject, descriptive summaries, for cases of financial audit or certification of financial statements, statements and confirmations, and minutes and other records.
Each working paper should be as complete as possible, and leave no doubts regarding the issue to which they relate. Each of the main types of job papers is described below.
Audit plans
The working papers must contain evidence that the auditor has developed a general strategy for the conduct and scope of the review.
Annotations should be made in relation to the activity in which the audited entity operates, conditions that require special audit procedures, any unusual accounting principles used, and the nature of any special report that must be rendered.
The audit program, a planning document that establishes the audit procedures that are estimated to be necessary to fulfill the objectives of the audit, may be supported by an internal control questionnaire, flow charts, an organization chart, and general evidence that helps to shape the course of the review.
The working papers include the notes prepared during the examination of pending issues to be investigated later, along with a complete explanation of the solution of these issues, which are generally acquired and analyzed in the preliminary exploration.
Worksheet
The trial balance is the connecting link between the accounting books and the financial statements on which the auditor issues his criteria. The worksheet is the Schedule of Control that shows the interrelationships of all other worksheets related to the examined accounts, perhaps grouped, with the other types of evidence.
This system of preparing and organizing the work papers showing a worksheet by groups of accounts of the balance sheet, an income statement worksheet, is important because they constitute an important work guide for the Auditor, since each of the items in these worksheets are analyzed in their corresponding work papers, sheets of 8 columns or more are generally used, the one that appears in the Institutional Stationery Manual.
Usually for each set of working papers, an index is prepared that clearly shows the location within the working papers file by themes, foreseen in the planning, which must be organized, according to the criteria of the auditor, important aspects when making Report notes, auditor's report draft worksheet, all notes and other information collected as evidence.
