Audit work-papers?

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1. When it comes to Audit work-papers for both Control and Substantive testing, there are several key documents and methodologies typically used for testing Balance Sheet (B/S) and Income Statement accounts. Here’s a breakdown of the common work-papers and methodologies:

   Common Work-Papers

   1. Understanding the Client’s Business:

   2. Client information forms, which include business structure, industry risks, and previous Audit findings.

   3. Internal Control Documentation:

   4. Flowcharts or narratives of internal controls.

   5. Control matrices that map risks to controls and their effectiveness.

   6. Risk Assessment Work-Papers:

   7. Risk assessment matrices that highlight identified risks and corresponding control activities.

   8. Test Plans:

   9. Detailed test plans outlining the objectives, change in controls, and substantive tests for both B/S and Income Statement accounts.

   10. Lead Schedules:

   11. Summarized schedules for major accounts, including reconciling items and analytical review summaries.

   12. Transaction Testing Sheets:

   13. Sample selection documentation, including sampled transactions and results from testing assertions (existence, completeness, valuation, etc.).

   14. Supporting Documentation:

   15. Copies of invoices, contracts, bank statements, management representations, and other relevant documents.

   16. Analytical Procedures:

   17. Comparisons of current year financial data to prior periods or industry benchmarks, along with explanations for significant variances.

   Methodology for Testing B/S and Income Statement Accounts

   1. Control Testing:
   2. Assess the design and operating effectiveness of internal controls through walkthroughs and testing. Key activities include:
      • Inquiry with personnel.
      • Observation of processes.
      • Re-performance of control activities.

   3. Document results in a control effectiveness matrix.

   4. Substantive Testing:

   5. Balance Sheet Accounts:

      • Cash: Bank confirmations, reconciliations, and cutoff tests.
      • Accounts Receivable: Confirmations with customers, aged receivables analysis, and provision testing.
      • Inventory: Physical counts, valuation tests, and reconciliations.
      • Liabilities: Testing of payables through vendor confirmations and cut-off tests.

   6. Income Statement Accounts:

      • Revenue: Test revenue recognition policies, perform analytical procedures on sales trends, and confirm with customers.
      • Expenses: Review supporting documentation for significant expenses, perform cutoff testing, and verify with third-party confirmations if applicable.
      • Gain/Losses: Assess the recognition of non-operating income and related supporting documentation.

   7. Final Analytical Review:

   8. Conduct a final analytical review to ensure that account balances are reasonable compared to expectations and prior periods, documenting findings and any required adjustments.

   Conclusion

   Organizing your Audit work-papers effectively ensures a thorough understanding and documentation of the processes and controls in place. It also helps substantiate findings during an audit and supports the conclusions drawn in the financial statements. Always follow the specific guidelines and standards applicable in your jurisdiction or auditing framework (e.g., ISA, GAAS).

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