The working papers which auditor prepares for financial statements audit are :
|a) evidence for audit conclusions|
b) owned by the client
c) owned by the auditor
d) retained in auditor’s office until a change in auditors
The Correct Answer Is:
c) owned by the auditor
Working Papers in Financial Statements Audit
Working papers are essential documents prepared by auditors during the course of a financial statements audit. They serve as the foundation for the audit process, documenting the evidence gathered, procedures followed, and conclusions reached.
In this context, it’s crucial to understand why the correct answer is (c) owned by the auditor and why the other options are not applicable.
Explanation of Correct Answer:
(c) Owned by the Auditor:
Working papers are considered the property of the auditor, not the client. This is because they are created by the auditor as a part of their professional responsibilities to ensure the accuracy and reliability of the financial statements.
These documents contain confidential information, analysis, and evidence gathered during the audit process, and are essential for demonstrating due professional care.
Working papers also help in providing a clear and detailed trail of the audit process, allowing for a transparent review of the work done. In case of a dispute or legal inquiry, these papers serve as crucial evidence of the auditor’s efforts, professional judgment, and the basis for their conclusions.
Explanation of Incorrect Answers:
Lets delve deeper into why the other options are not correct one by one:
a) Evidence for Audit Conclusions:
While working papers do contain evidence for audit conclusions, it’s important to note that they encompass much more than just evidence. Working papers also include planning documents, testing procedures, analytical procedures, and communication with the client.
These papers serve as a comprehensive record of the entire audit process, not just a repository for evidence. Additionally, working papers are not limited to conclusions; they also contain the rationale and basis for these conclusions, making this option an incomplete description of their purpose.
b) Owned by the Client:
This option is incorrect because working papers are considered the property of the auditor, not the client. The rationale behind this is rooted in professional independence and confidentiality.
If working papers were owned by the client, it could potentially compromise the auditor’s ability to exercise independent judgment and could lead to conflicts of interest.
Moreover, working papers often contain sensitive information that the client may not be privy to, and therefore, ownership by the auditor is critical to maintain professional standards.
d) Retained in Auditor’s Office Until a Change in Auditors:
While it’s true that working papers are typically retained by the auditor, this option is not entirely accurate. Working papers are retained for a specific period, usually in accordance with legal and professional requirements.
The retention period may extend beyond a change in auditors, especially if there are legal or regulatory obligations to maintain them for a certain duration. The main purpose of retaining working papers is to provide support for the audit findings and conclusions, and to facilitate potential reviews or inquiries in the future.
In summary, it’s important to emphasize that working papers serve a multifaceted purpose beyond merely providing evidence for audit conclusions. They are comprehensive records that include planning, testing, analysis, and communication with the client.
Additionally, ownership by the client would pose significant professional and ethical challenges, and the retention period is determined by legal and professional standards rather than being solely contingent on a change in auditors.