The auditor’s permanent working paper file should not normally, include
|a) extracts from client’s bank statements|
b) past year’s financial statements
c) attorney’s letters
b) debt agreements
The Correct Answer Is:
- a) extracts from client’s bank statements
The correct answer is “a) extracts from client’s bank statements.” The auditor’s permanent working paper file typically should not include extracts from the client’s bank statements. Here’s a detailed explanation of why this is the case and why the other options are not normally part of the permanent working paper file:
a) Extracts from client’s bank statements (Correct Answer):
The auditor’s permanent working paper file is a collection of documents and information that are retained for multiple years to provide a historical reference for the audit engagement. It is meant to serve as a resource for future audits and may contain important information regarding the client’s financial history, policies, and procedures.
However, including extracts from client bank statements in the permanent file could be problematic for several reasons. Bank statements often contain sensitive financial information, and their inclusion could compromise client confidentiality and pose security risks.
Moreover, bank statements can quickly become outdated, and including them may not serve a meaningful purpose in the long term. Instead, auditors typically rely on other documents and summaries, such as bank reconciliations and cash flow statements, which provide a more comprehensive view of the client’s financial transactions without the need for including actual bank statements.
Now, let’s discuss why the other options are not normally part of the auditor’s permanent working paper file:
b) Past year’s financial statements:
Past year’s financial statements are typically not included in the permanent working paper file. While they are essential for understanding the client’s financial history and for performing comparative analysis, they are usually part of the current audit file, not the permanent file.
The permanent file is meant for more static reference materials, while the current file contains the documents relevant to the specific audit being conducted. The past year’s financial statements are critical for the current audit, and auditors will refer to them during the engagement, but they are not permanently retained.
c) Attorney’s letters:
Attorney’s letters are legal documents that pertain to specific legal matters involving the client, such as pending lawsuits or legal disputes. These letters contain information related to the client’s legal affairs and are not typically included in the auditor’s permanent working paper file.
While they may be referenced during the audit, they are more relevant to the current audit and may not have enduring significance for future audits. It’s common for auditors to request attorney’s letters as needed for each audit engagement, but they are not part of the permanent file.
d) Debt agreements:
Debt agreements are contracts between the client and lenders that outline the terms and conditions of loans or borrowings. These agreements are important for understanding the client’s financial obligations and may impact the audit, especially in terms of assessing the client’s ability to continue as a going concern.
However, like attorney’s letters, debt agreements are not typically included in the auditor’s permanent working paper file. The terms of debt agreements can change over time, and new agreements may be entered into, so it is more appropriate to include a summary or reference to the debt agreements in the current audit file, rather than retaining the actual agreements in the permanent file.
In summary, the auditor’s permanent working paper file is a repository of information that is intended to be retained for multiple years to provide historical context and reference for future audits. While certain documents and information are crucial for the audit process, not all of them are suitable for inclusion in the permanent file.
Documents like bank statements, which contain sensitive financial information and can quickly become outdated, are typically excluded from the permanent file to ensure client confidentiality and maintain the file’s relevance over time. Instead, these documents are more appropriately included in the current audit file, which is specific to the ongoing audit engagement.