Continuation of Types of Working Paper

3. Supporting Schedules and Analyses

SUPPORTING SCHEDULES
These are the detailed schedules prepared by auditors in support of specific amounts on the financial statements.
For example, a cash count sheet is prepared to provide the details of the composition of cash on hand and
account as of a particular date.

ACCOUNT ANALYSIS
This working paper shows the activity during the period in a particular statement of financial position account.
It start with the beginning balance, shows the transaction (additions and reductions) that occurred during the
period, and concludes with the ending balance. This type of working paper schedule is often used for notes
receivable, marketable securities, property, plant, and equipment, long-term debt and for all equity accounts.

4. Summary of Adjusting and Reclassifying Entries

ADJUSTING ENTRIES are corrections of material errors in the accounting records discovered by the auditor.
These entries must be approved by the client because management has primary responsibility for the fair
presentation of the statement. For example, if the client failed to provide allowance for doubtful accounts in the
accounts receivable, an adjusting entry can be made to reflect properly its realizable value.

RECLASSIFYING ENTRIES are made in the statements to present accounting information properly, even
when the general ledger balances are correct. For example, material credit balances in customers' accounts
should be reclassified to accounts payable for financial statement presentation purposes.

5. Audit Notes or Memoranda and Documentation of Corroborating Information

AUDIT NOTES
This is the working paper used to note items of work to be done that cannot be completed by following the
usual sequence of audit procedures. This is also used to record questions concerning the audit investigation.

OUTSIDE DOCUMENTATION
Much of the content of the working paper consist of the outside documentation gathered by auditors, such as
confirmation replies, and copies of client agreements. They are indexed and interfiled and procedures are
indicated on them in the same manner as on the other schedule.

Relationship of Working Papers to Financial Statements

Figure 21.1 shows an illustration of the relationship between an account (cash on hand and in bank) as
eventually reflected in the financial statements and the working papers that support its analysis and reflect the
work performed by the auditor.
Working Paper Files
Each CPA firm establishes its own approach to preparing and organizing working papers and the beginning
auditor must adopt his or her firm's approach.
Figure 21.2 illustrates the contents and organization of a typical set of working papers. In this illustration, the
working papers start with more general information such as corporate data in the permanent files and end with
the financial statements and audit report. In between are the working paper evidencing and supporting the
auditor's tests.

Figure 21.1 Relationship of Working Papers to Financial Statements

Financial Statements
X Corporation
Statement of Financial Position
December 31, 2013
ASSETS
Cash on hand and in banks
Pxx
Marketable Securities (at cost, estimated market value,)

Pxx

Working Trial Balance

Ref.
WP

X Corporation
Working Trial Balance
12.31.2013
Per
Net Adjustments
Ledger
Dr.
Cr.

ASSETS
Cash on hand and in banks

Pxx

Pxx

As
Adjusted
Pxx

Lead Schedule

Ref.
WP

X Corporation
Cash on Hand and in Bank
12.31.2013
Per
Net Adjustments
Ledger
Dr.
Cr.

ASSETS
Petty cash fund
Equitable PCI Bank Current
Equitable PCI Bank Savings
Total

Pxx
xx
Pxx

Pxx
Pxx
xx
Pxx

xx
Pxx

As
Adjusted
Pxx
xx
xx
Pxx

Supporting Schedule
X Corporation
Reconciliation Statement
Equitable PCI Bank Current
12.31.2013
Balance per Ledger
Add (Deduct) Reconciling Items
Proceeds from bank loan

Pxx

Net Adjustment
Balance as adjusted

xx
Pxx

Pxx

Figure 21.2 Current File (workpapers applicable exclusively to current period under audit)

There are two main divisions of audit working papers: the current audit file and the permanent file.
Current Audit File
The current year working file is designed to support the assertion embodied in the financial statements. The
financial statements shown at the top of Figure 21.2 are supported by working trial balance which shows the
proposed adjustments and reclassification. Each account on the working trial balance is supported by lead and
supporting schedules.
This file contains all papers accumulated during the current year's examination. The working papers normally
included in the current file are:
1. Original draft of the report
a. The financial statement
b. Draft of the auditor's repost
c. Draft of income tax return
4

2. Audit plan and programs

3. Working trial balance
4. Adjusting and reclassifying journal entries
5. Lead and supporting schedules
6. General information, such as
a. Abstracts or copies of minutes of the board of directors' meeting
b. Abstracts of contracts or agreements not included in the permanent files
c. Notes on discussions with the client
d. Notes about impressions of the form of the client's office and plant

Permanent File
Working papers in the permanent files contain information of continuing interest to the auditor.
These are intended to contain data of a historical or continuing nature pertinent to the current examination.
These files provide a convenient source of information about the audit that is of continuing use from year to
year.
The permanent files typically include the following:
1. Excerpts of the corporate charter or articles of co-partnership/ by-laws
2. Analysis of business and industry
3. Copies of contracts (that affect future periods)
4. Chart of accounts and accounting procedure manuals
5. Flowcharts and notes on the accounting system and related controls from prior examination
6. Continuing analyses of fixed assets
7. Organization charts and excerpts from job manuals
5

8. Terms of capital stock and bond issues

9. Result of analytical procedures from previous years' audit
10. Excerpts from minutes of meetings
11. Labor-management agreement
12. Information concerning related parties
13. Description of complex business transactions and/or unique accounting treatments
14. Copies of pension plans, stock option plans, and employee bonus and profit-sharing plans

Other files may also be maintained such as:

1. Tax Files
These files contain information relevant to a client's current and past income tax and other business tax
obligations. They serve as basis for preparing current year's return and performing other tax-related services
such are amending prior year returns or representing the client's tax assessment case.
2. Correspondence File
This file contains all correspondence or letter to, from or in behalf of a client.

An example of a file index is shown below.

Index - Year-end Audit File
Finalization of Audit
1. Audit file closing

Quality control review (if EQCR applicable)

2. Financial statements/auditor's report

5. Financial statement presentation and disclosure

review

3. Final analytical review

6. Engagement partner/sole practitioner review

4. Reviewer's checklist

7. Adjusting and closing journal entries

6

8. Working trial balance

Discussions with management and others

9. Correspondence, discussions, and notes -

Management letter

Representation letter

Notes and queries

Audit Acceptance
11. Audit engagement acceptance checklist -

12. Understanding the entity and its environment -

New or continuing client

Client profile

Information from predecessor's files*

Documents to request

Engagement letter*

Overall Audit Strategy

21. Establishing the overall audit strategy checklist

25. Assessing inherent risks

22. Determining materiality evaluating

26. Determining whether the risks indicate the need

misstatements

for an EQCR

23. Identifying risks using analytical procedures

27. Audit budget - Time and Fees Schedule of

documents to be prepared by client

24. Conducting an audit team planning meeting

28. Overall audit strategy

Assessing Risks of Material Misstatement

31. Assessing the risks of material misstatement

33. Evaluating the control environment

checklist

34. Evaluating management's use of estimates,

32. Inquiries for management, for those responsible

including fair value

for governance, for those responsible for internal

35. Information systems and internal control:

audit, and for others in the entity

General IT system and IT controls

7

Revenue, receivables, and receipts

Payroll

Purchases, payables, and payments

Inventory, cost of sales, and production

Payroll

Financing and equity

Inventory, cost of sales, and production

37. Review of minutes of all meetings

Financing and equity

Appointment of auditor (AGM resolution)

36. Testing controls**:

38. Review of client's annual report or other

document that will include the audited financial

Revenue, receivables, and receipts

statements

Purchases, payables, and payments

39. Risk assessment summary

Financial Statement Checklists, Analytical Procedures and Tests of Balances

Balance Sheet/Statement of Financial Position
A Cash and cash equivalents

NN Equity/Net assets

B Trade and other receivables

SS Journal entries

C Inventories

TT Responding to indications of fraud

D Prepaid expenses

UU Going concern

E Investments

VV Foreign currency translation

F Property, plant and equipment (BUS)

WW Accounting estimates

G Capital Assets (NPO)

Changes in accounting policies and correction of prior period errors

H Goodwill and intangible asset (BUS)

XX Related party transactions

AA Short-term and long-term debt

Significant transactions outside the normal course of business

BB Accounts payable and accrued liabilities

YY Contingencies and contractual obligations

EE Taxes payable

ZZ Economic dependence

HH Other liabilities

Income Statement/Statement of Operations

100 Revenue

300 Expenses

200 Cost of sales

400 Other income and expenses

Substantive Tests of Transactions**

500 Revenue, receivables, and receipts
Purchases, payables, and payments
Payroll

Inventory, cost of sales, and production

Financing and equity

May be in permanent file

**

May be in interim file

Multiple Choices
1. The permanent file of an auditor's working papers generally would not include
a. Bond indenture agreements
b. Working trial balance
c. Lease agreements
d. Flowchart of the internal control structure

2. The primary reason auditors cross-index their working papers is to

a. Give the working papers of a professional appearance
b. Explain the use of tick marks
c. Provide an explanation of the audit steps performed
d. Provide a trail for the auditor and the reviewer

3. Which of the following statements concerning working papers is incorrect?

a. An auditor may support an opinion by other means in addition to working papers.

b. The form of working papers should be designed to meet the circumstances of a particular engagement.
c. An auditor's working papers may not serve as a reference source for the client.
d. Working papers should show that the internal accounting control system has been studied and evaluated to
the degree necessary.

References:
Cabrera, Elenita B., Public Accountancy Profession, 2013-2014 Edition.
Salosagcol, Jekell G.; Tiu, Michael F.; Hermosilla, Roel E., Auditing Theory,2014 Edition, GIC
ENTERPRISES & CO., INC., Manila, Philippines.