The current file of the auditor’s working papers, generally, should include
|a) a flowchart of the internal controls|
b) Organization charts
c) a copy of financial statements
d) copies of bond and debentures
The Correct Answer Is:
c) a copy of financial statements
The correct answer is (c) a copy of financial statements. The auditor’s working papers are a crucial component of the audit process, containing all the documentation and evidence supporting the auditor’s findings and conclusions.
Here’s a detailed explanation of why this answer is correct:
Explanation of the Correct Answer (Option C):
The inclusion of a copy of financial statements in the auditor’s working papers is essential for several reasons:
i. Audit Trail:
Financial statements are the primary subject of an audit. They provide a clear picture of a company’s financial performance and position.
Including a copy of these statements in the working papers establishes an audit trail, allowing auditors to cross-reference their findings, conclusions, and procedures with the specific numbers and figures in the financial statements.
ii. Reference for Testing:
Auditors use the financial statements as a reference point to conduct various audit procedures. These procedures can include substantive testing, analytical procedures, and comparison of account balances, to name a few.
Having a copy of the financial statements readily available in the working papers ensures that auditors can efficiently perform their tests and verifications.
iii. Documentation of the Audit Process:
The financial statements are a fundamental component of the audited entity’s records. Their inclusion in the working papers demonstrates that the auditor has thoroughly examined these critical documents, providing a clear record of the audit process.
This documentation is essential for both internal quality control and external regulatory oversight.
iv. Basis for Opinion:
Ultimately, the auditor’s working papers are used to form an opinion on the fairness and accuracy of the financial statements. Without a copy of the financial statements, it would be impossible for the auditor to evaluate and assess the financial information presented in those statements.
The opinion rendered by the auditor is based on their assessment of the financial statements.
Explanation of Why the Other Options Are Not Correct:
a) A flowchart of the internal controls:
While a flowchart of internal controls may be part of the audit working papers, it is not a universally required element.
The necessity for including this information depends on the nature of the audit and the audit plan. In many cases, auditors may choose not to include a flowchart of internal controls.
b) Organization charts:
Like flowcharts of internal controls, organization charts may or may not be included in the working papers.
They can be useful for understanding the structure of the audited entity and the segregation of duties within the organization. However, they are not a standard requirement in all audits.
d) Copies of bonds and debentures:
The inclusion of copies of bonds and debentures is not a standard component of the auditor’s working papers. It may be relevant if these financial instruments are a significant part of the audited entity’s financial statements, but it is not universally required.
Auditors typically focus on the financial statements themselves and related documents when evaluating financial statement assertions and performing audit procedures.
In summary, the auditor’s working papers serve as a comprehensive record of the audit process, ensuring transparency, accountability, and the ability to support the auditor’s opinion.
While options (a), (b), and (d) may be included in the working papers in specific situations, they are not universally required, making option (c) – a copy of financial statements – the most critical and essential component of the working papers in most audits.