Permanent file definition
/What is a Permanent File?
A permanent file is a set of records that serves as an ongoing reference for an organization's external auditors. The information in the file is intended to be accessed repeatedly in successive audits to assist the audit team in the conduct of their tasks. The file may contain the following documents:
Articles of incorporation
Bylaws
Director list
History of the client organization
Internal controls documentation
Organization chart
Prior year's audit report
By maintaining these items in a permanent file, incoming auditors have a ready source of relevant information pertaining to a client. In order to keep this information relevant, the auditors will need to update the file whenever there is a change in the documentation, such as new accounting policies, articles of incorporation, and bylaws.
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Example of a Permanent File
An audit firm maintains a permanent file for one of its clients, GreenTech Inc., a manufacturing company. In this file, the auditors include the following documents:
Incorporation documents. Includes GreenTech’s articles of incorporation, bylaws, and business licenses that define the company’s legal structure and governance. These documents help auditors understand the authority of management and the legal framework within which the company operates.
Key contracts and agreements. Includes long-term contracts, such as lease agreements for factory space, major supply contracts, and loan agreements with financial institutions. These documents provide insights into GreenTech’s ongoing obligations, payment terms, and potential risks, which are relevant for every audit period.
Organizational chart. Includes a current organizational chart showing key management positions and reporting lines. This helps auditors assess the effectiveness of internal controls and understand approval processes for financial transactions.
Accounting policies and procedures. Includes a summary of GreenTech’s significant accounting policies, such as revenue recognition, inventory valuation, and depreciation methods. Consistently reviewing these policies allows auditors to verify compliance with GAAP accounting standards like GAAP.
Previous years' audit reports. Includes copies of prior years’ audit reports, management letters, and audit adjustments. These documents help auditors track how past issues were resolved and identify trends or recurring problems that need attention.
These documents remain relevant and are updated periodically but are not specific to any one year’s audit.