They are the set of certificates and reliable documentation that contain the data and information obtained by the auditor in his examination, as well as the description of the tests carried out and the results of the same, on which the opinion he issues when signing his report is based.
PURPOSE
The overall purpose of working papers is to help the auditor adequately ensure that an audit was conducted in accordance with generally accepted auditing standards. The working papers, as they correspond to the current year's audit, are a basis for planning the audit, a record of accumulated evidence and test results, data to determine the appropriate type of audit report, and a basis for analysis for supervisors and partners.
CLASSIFICATION
The classification of working papers is as follows:
Classification of Audit Work Papers
WORK PAPER FILE
All public accountants associations establish their own method for preparing, designing, classifying and organizing working papers, and the beginning auditor adopts the method of his office. The general concepts common to all working papers are:
PERMANENT FILES. Their objective is to gather data of a historical or continuous nature related to the present audit. These files provide a convenient source of audit information that is of ongoing interest from year to year. We will study more about the permanent archive later.
FILES PRESENT. They include all working documents applicable to the year being audited. The types of information included in the present file are: audit programs, general information, work trial balance, adjustment and reclassification entries and supporting documents.
CONTENT
Proper preparation of the accumulated certificates to document the audit evidence, the results found and the conclusions reached is an important part of the audit. The auditor recognizes the circumstances that require a certificate and the appropriate design of the certificates that must be included in the files. Although the design depends on the objectives involved, the work papers must have certain characteristics:
- Each working paper must be identified with information such as the client's name, period covered, description of the content, the signature of the person who prepared it, the date of preparation and the index code. The working papers are cataloged and cross-referenced. to aid archiving and organization Full working papers clearly indicate the audit work performed Each working paper includes enough information to meet the objectives for which it was designed The conclusions reached about the audit segment that are being considered are also clearly stated.
OWNERSHIP OF THE WORK PAPERS.
Working papers prepared during the audit, including those prepared by the client for the auditor, are the property of the auditor. The only time another person, including the client, has legal rights to examine the papers is when required by a court as legal evidence. At the end of the audit, the working papers are kept in the offices of the accountants' office for future reference.
CONFIDENTIALITY OF WORKING PAPERS.
In the same way that the books, records and accounting documents support and verify the balance sheets and financial statements of companies, so also the working papers constitute the basis of the opinion that the public accountant renders in relation to those same balances and financial statements.
When a company discloses the results of its operations, it always does so through the financial statements it has prepared, and not through accounting books and records or administrative procedures.
The auditor's report must be sufficient for reporting purposes, therefore he will not disclose any confidential information obtained in the course of a professional audit except with the consent of the client.
If the auditor's opinion is objected or refuted, the professional may resort - and in some cases is forced - to present his work papers, both as proof of his good faith, and of the technical correctness of his procedures to reach his opinion.
CEDULES
To carry out an audit work, either as an employee of the internal audit department or as a public accountant, the auditor will need to examine the books and documents that support the registered operations and must also keep a record of the extent to which that examination was performed., formulating for this purpose, extracts from the minutes of the shareholders' meetings, the board of directors, the contracts entered into, etc. as well as analysis of the content of its accounting books, registration procedures, etc. These extracts, analyzes, notes and other records constitute what is known as cédulas, and their set, duly classified and organized, the working papers.
These documents constitute the basis and evidence for the opinion or final report.
A definition of audit certificates could be:
Audit Certificate: It is the document or paper that records the work done by the auditor on an account, item, area or operation subject to examination.
CLASSIFICATION
The audit certificates can be considered of two types:
- Traditional Eventual
The traditional ones, also called basic ones, are those whose nomenclature is standard and their use is very common and widely known; within these are the:
- Summary certificates.- Which are summaries or synoptic tables of concepts and / or homogeneous figures of an account, item, area or operation. Analytical cells.- They are placed in detail of the concepts that make up a summary certificate.
For example: The summary schedule of accounts receivable from customers will report, by homogeneous groups, the types of customers that the entity subject to audit has: wholesale customers, government customers, as well as the total balance of each group. The analytical certificates will be made one for each type of clientele, indicating in them how the balance of each group is made up.
Eventual schedules do not obey any type of standard nomenclature pattern and names are assigned at the auditor's discretion and can be observation schedules, work program, adjusting entry schedules, reclassification schedules, confirmations, letters of safeguard, schedules. of recommendations, control of audit times, pending matters, among many more types of certificates that could be presented.
RECLASSIFICATION SEATS
Reclassification entries must be recorded only in the auditor's working papers and correspond to the proper presentation of financial statements of the correct grouping of accounts, regardless of whether the operations carried out in a period are duly recorded.
To determine the required reclassification entry, the auditor should ensure the proper composition of the account balance. Therefore, if the balance of the outstanding obligations item includes some obligations that expire next year, these must be presented as current liabilities. The entry that corresponds to this case will be a charge to outstanding obligations with payment to an overdue portion of outstanding obligations.
The auditor should summarize these entries in a list within the working papers, code them by letter and explain them to the client if necessary, but should not record them; because your job is not to do the accounting.
To facilitate identification, reclassification entries should be properly grouped.
ADJUSTMENT SEATS
When the auditor discovers material errors in the accounting records, the financial statements should be corrected. For example, if the client did not adequately reduce inventory for obsolete raw materials, the auditor may make an adjustment to reflect the realizable value of the inventory. Although the adjusting entry discovered in the audit is typically prepared by the auditor, these must be approved by the client because management has primary responsibility for the fair presentation of the financial statements.
Only entries that significantly affect the fair presentation of the financial statements should be made. The determination of when to adjust an error is based on the impact that such error will have on the financial statements of the company in question. The auditor should remember that several non-material misstatements that do not fit can result in one major overall error when combined. It is common for auditors to summarize all entries that have not been recorded on a separate working paper as a means of determining their cumulative effect.
PERMANENT FILES OR FILES
As its name indicates in the permanent file, information of continuous interest should be kept that extends beyond any particular audit period.
In the introductory part of this file, a certificate must be included that will act as an index or content that will indicate the different sections that comprise it, which, in turn, will be arranged in chronological order according to the date of collection. Therefore, it is essential to properly plan the information that this file should contain; thus foreseeing its growth.
It is important that at the end of the audit work a final review is made of the information contained in the permanent file, to ensure that it is what (in the auditor's opinion) it is considered convenient to maintain.
The permanent files are intended to collect data of a historical or continuous nature related to this audit. These files provide a convenient source of audit information that is of ongoing interest from year to year. Permanent files include the following:
- General audit work program and its evolution Summaries or copies of company documents that are of continuous importance such as the articles of incorporation, bylaws, legal bond issuance and purchase agreements, and contracts. Contracts are pension plans, leases, stock options, etc. Each of these documents is important to the auditor for as many years as it is in force. Tax and legal obligations to which the entity is subject.. Copy or extract of the main contracts with which the entity is bound. Analysis of years previous accounts such as long-term debt, shareholders' equity accounts, goodwill, and fixed assets.By having this information in permanent files, the auditor concentrates it by analyzing only changes in the current year's balance sheet while keeping the results of the audits of previous years in an accessible form for a later study. Evolution of capitalized asset accounts and their corresponding depreciation and / or amortization. Information related to the knowledge of the internal control structure and the evaluation of the control risk. It includes organizational charts, flow charts, questionnaires and other internal control information, including a list of controls and disadvantages in the system. The results of the analytical procedures of previous years audits. Among these data are ratios and percentages calculated by the auditor and the total balance or the balance per month for selected accounts.This information is useful as it helps the auditor to decide if there are unusual changes in account balances for this year that should be investigated more fully Operating systems in use, such as general accounting systems and the accounting system of costs (including in both, chart of accounts, accounting guide and accounting instructions).
SUBSTANTIVE EVIDENCE.
A substantive test is a procedure designed to test the monetary value of balances or the absence of monetary errors that affect the presentation of the financial statements. Such errors (commonly known as monetary errors) are a clear indication that account balances may be misrepresented. The only doubt that the auditor must resolve is whether these errors are significant enough to require adjustment or their disclosure in the financial statements.
They must be run to determine if monetary errors have actually occurred.
In summary they will help to check if the information has been corrupted by comparing it with another source or by reviewing the data entry documents and the transactions that have been executed.
Once the results of the tests have been evaluated, conclusions are obtained that will be commented and discussed with those directly responsible for the affected areas in order to corroborate the results. Finally, the auditor must issue a series of comments describing the situation, the existing risk and the deficiency to be solved, and where appropriate, suggest the possible solution.
This will be the technique to be used to audit the general environment of a database system, both in its development and during operation.
COMPLIANCE TESTS
Compliance tests represent audit procedures designed to verify whether the client's internal control system is being applied in accordance with the way it was described to the auditor and in accordance with the intention of management. If, after verification, the client's controls appear to be operating effectively, the auditor justifies being able to have confidence in the system and therefore reduces his substantive testing.
Compliance testing is related to three aspects of customer controls:
- The frequency with which the necessary control procedures were carried out. To reduce substantive testing, the procedures prescribed in the system must be consistently being followed. The quality with which the control procedures are executed. Control procedures must be carried out properly. The quality of its execution can be tested by discussing the criteria followed to make certain decisions The person who executes the procedure. The person responsible for the control procedures must be independent of incompatible functions for the control to be effective.
ELECTRONIC DATA PROCESSING (PED)
With advances in technology, it is necessary for the auditor to know the electronic equipment that his client uses to take advantage of it when performing his audit. It is not necessary for the auditor to be an expert in programming, but to know the accounting programs that the client uses.
TECHNICAL COMPLEXITY
PED systems are defined by their technical complexity and the degree to which they are used in an organization. A better measure of complexity is the capacity of a system compared to the capacity of a system that is considered the best standard, and is defined as complex.
DEGREE OF USE
There are two ways in which the auditor could use electronic equipment
- To obtain statuses, relationships, account analysis, etc. That you can use as certificates whose content facilitates the verification of certain items, as a means of verifying the functioning of internal control, in the case of an operational audit.
The degree to which the PED is used in a system is also related to complexity. Generally, as more business and accounting functions are performed by computer, the system has to become more complex to accommodate processing needs. One way a system can be made more complex is by increasing the number of transaction cycles that are computer-based.
Complexity also increases as the number of computer-based functions in a given cycle increases.
EFFECT OF PED ON ORGANIZATIONS
The PED has several important effects on organizations. The most important from an audit perspective relates to organizational changes, information visibility, and the potential for error.
The organizational change refers to the facilities, the personnel, the centralization of data and separation of responsibilities and the authorization methods of the organizations that use the PED, these changes will depend on the complexity of the same.
In non-complex PED systems, there are often source documents in support of each transaction, and most of the processing results are printed. So the inputs, outputs and also much of the processing are visible to the user and the auditor of the PED. With higher volumes of data and more complexity, visibility into input data, visibility into processing, and visibility into the transaction trail will no longer be possible.
Other factors that increase the probability of making significant errors in financial statements are: reduction of human participation, uniformity of processing, unauthorized access and loss of data. These factors are of importance to the auditor.
AUDIT COMMITTEE
An audit committee is a group of individuals who meet to discuss matters that are everyone's responsibility or are of interest to all, with the purpose of receiving, analyzing, discussing and reaching agreements or conclusions related to the objective for which the audit was created. committee. The hierarchy of its members must be depersonalized to avoid impositions by authority, its members must be considered at the same hierarchical level, which leads us to the need for a high degree of professional and administrative maturity of its components.
The objective will be delineated by the type and purpose of the organization, however it can be understood that the purpose of a CA will be "Coordinate the audit efforts of an organization under a scheme that dictates policies and guidelines aimed at supporting and fulfilling the objectives external audit "
AUDIT CYCLE
Period during which all the activities of a given center are audited.
An effective audit approach in the reviews of operations and internal control in the work where it is required to report or comment on internal control, as would be the case of the comprehensive audit, is that of the audit cycles:
This approach is related to the audit of the controls of the economic transactions that originate the financial statements, with an emphasis on internal control. The approach to auditing through a more analytical and in-depth review of internal control requires that the transactions characteristic of each business be grouped in an orderly manner. The study of this concept requires as a fundamental basis, that such transactions be defined and the way in which they can be grouped.
Although companies have different classes of transactions according to their characteristics, for practical purposes they can be organized according to their normal development and presented in the following typical cycles generally applicable to most businesses:
- Income cycle. It refers to the sale of goods and services to third parties in exchange for money. Purchase cycle. Refers to the acquisition of capital assets, labor, services and materials in exchange for cash, payroll or personnel cycle. It is related to expenditures and transactions of human resources. Treasury cycle. Understand the management of company funds; It begins with the recognition of income, includes the distribution of cash in current operations and other uses and ends with the return of this to investors and creditors. Production cycle. It consists of the transformation of the assets acquired into goods and services for sale. Financial information cycle.It includes the preparation of financial statements that summarize the results of the business activities at a specific date or period.
VALUATION METHODS
The most commonly used inventory valuation methods are the following:
- Identified Costs Average Price (PP) First Entries, First Exits or (FIFO) Last Entries, First Exits or (LIFO) Retail Method.
IDENTIFIED COSTS METHOD
This method can yield the most accurate amounts because the units in stock can be identified as belonging to certain acquisitions.
AVERAGE PRICE
In this method, it is necessary to determine the cost at which the merchandise will be delivered from the warehouse as follows: the balance must be divided by the number of items in the warehouse after each purchase made.
FIFO
This method is based on the assumption that the first articles and / or raw materials to enter the warehouse or to production are the first to leave it, at their acquisition cost.
LIFO
This method starts from the assumption that the last entries into the warehouse or into the production process are the first items or raw materials to leave.
RETAILER
With the application of this method, the amount of inventories is obtained by valuing the inventories at sales prices, deducting the factors of gross profit margin, thus obtaining the cost per group of articles produced.
DEPRECIATION METHODS
STRAIGHT LINE
This method tries to distribute over the service life, amounts as approximate as possible to the cost of an asset or group of assets less what can be expected by scrap value. This is the method most used by accountants.
UNITS PRODUCED
This method is similar to the straight line, it only differs in that it distributes the depreciation based on the units that will be produced each year, this method is recommended for assets that are in production departments, such as machinery and equipment that are internally transported.
DECREASING CHARGES METHOD (ACCELERATED DEPRECIATION)
In this method, depreciation charges are higher during the first years of the life of a new fixed asset than in later years. Under this depreciation method, a constant percentage will be applied to the book value or depreciable value of the asset. Since the book value decreases each year, the depreciation charges are high at first and then they get lower and lower. Generally, new fixed assets are capable of producing higher income than old units, depreciation is achieved in the first periods when the asset yields its maximum economic profit.
METHOD OF THE SUM OF YEARS OF DIGITS
This method intends that the depreciation charges in the first years of life of the fixed asset are sufficiently large. The depreciation for each of the years will represent a negligible fraction of the value. The denominator of the fraction is obtained by numbering the years of useful life and adding them. The numerator for the first year will be equal to the estimated useful life.
BIBLIOGRAPHY
- Santillana González. "Know the Audits" Editorial: ECASA. Fourth edition. Luis Ruiz de Velasco and Alejandro Prieto. "Practical Audit" Editorial: Banca y Comercio, SA de CV. Tenth edition.Heffes - Holguin - Galas. “Audit of financial statements, modern techniques and applications” o Grupo Editorial Iberoamérica lafacu.com Alvin A, Arenas, James K. Loebbeecke. "Auditing a comprehensive approach" Editorial: Pearson Education. Sixth edition.
WORK PAPERS
Contributed by: Beatriz Zamarron
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