Work papers definition
/What are Work Papers?
Work papers are the collection of documents assembled by an auditor while examining the financial records of a client. Work papers provide the evidence upon which an auditor's opinion regarding a client's financial records is based. Work papers are examined as part of a peer review examination, as per the standards promulgated by the relevant standard-setting entity. The following documents may be included in the work papers:
Analyses
Confirmation results
Memos
Schedules
Transcriptions
Who Owns Work Papers?
The accounting firm that conducts an audit is the owner of the work papers prepared during that audit; they are not the property of the client.
Related AccountingTools Courses
Examples of Work Papers
Below is a list of common work papers an auditor might prepare:
General Planning and Administrative Work Papers
Audit plan. Detailed plan outlining the scope, objectives, timing, and procedures of the audit.
Engagement letter. Agreement with the client, specifying the terms of the audit engagement.
Audit risk assessment. Evaluation of the inherent, control, and detection risks for the engagement.
Materiality assessment. Documentation of the levels of materiality for planning and evaluating findings.
Client background information. Industry and business overview of the client.
Preliminary analytical procedures. Analysis of financial data to identify areas of risk or unusual trends.
Internal control questionnaire. Checklist or narrative documenting the understanding of internal controls.
Financial Statement Work Papers
Trial balance. Reconciled client-provided trial balance with adjustments and reclassifications.
Lead schedules. Summarized schedules for major financial statement line items.
Supporting schedules. Detailed analysis for individual accounts (e.g., accounts receivable aging, fixed asset depreciation).
Adjusting journal entries. Proposed journal entries to correct errors or adjust financial statements.
Reclassification entries. Entries to properly classify accounts within the financial statements.
Financial statement drafts. Preliminary drafts of the financial statements for review.
Audit Testing Work Papers
Substantive testing schedules. Documentation of procedures performed and results of testing, such as:
Revenue testing
Expense testing
Inventory count and valuation
Accounts receivable confirmation procedures
Accounts payable cutoff testing
Sampling documentation. Basis and methodology for sample selection and results.
Control testing work papers. Evidence of testing the design and operating effectiveness of internal controls.
Compliance checklists. Review of adherence to laws, regulations, and company policies.
Special Areas
Fraud risk assessment. Documentation of brainstorming sessions and specific fraud risk factors.
Related party transactions. Identification and review of related party agreements and disclosures.
Going concern assessment. Evaluation of the entity’s ability to continue as a going concern.
Contingencies and commitments. Review of legal matters, warranties, and other potential obligations.
Tax compliance. Analysis of tax accounts and positions.
Other Work Papers
Management representation letter. Signed statement from management confirming their responsibilities and assertions.
Audit program. Step-by-step checklist of audit procedures for the engagement.
Meeting notes. Records of meetings with management, audit committees, or other stakeholders.
Documentation of judgments and estimates. Analysis of management’s significant accounting estimates.
Issues log. Ongoing record of audit issues, queries, and resolutions.
Subsequent events review. Analysis of events occurring after the balance sheet date that could affect the financial statements.
Conclusion Work Papers
Summary of audit differences. Documentation of uncorrected misstatements and their impact on the financial statements.
Final analytical review. High-level comparison of audited financial statements to expectations.
Audit opinion draft. Preliminary wording for the audit opinion.
These work papers collectively provide the evidence necessary to support the audit conclusions and comply with professional and regulatory standards.