Specific Independent Auditing Standard No.6 - Audit Working Papers

Specific Independent Auditing Standard No. 6 - Audit Working Papers Chapter 1 General provisions Article 1 This standard is prepared in accordance with the General Independent Auditing Standard to establish standards for the preparation, review, use and management of audit working papers. Article 2 The term "audit working papers" in this standard refers to the audit working records and materials prepared, or obtained, by Certified Public Accountants ("CPAs") in connection with the performance of the audit. Article 3 CPAs may refer to this standard in performing accounting advisory or accounting service engagements. Chapter 2 General principles Article 4 Audit working papers should objectively reflect the preparation and execution of the audit plan, including all significant matters relating to the formation and expression of the audit opinion and the professional judgements made by the CPA. Article 5 Audit working papers should be designed and organised in a way which is sufficiently complete. In addition, the format and use of audit marks should be standardised and consistent, the records should be clear and the conclusions drawn should be definite. Article 6 The complexity of audit working papers is affected by basic factors such as: (1) the nature, objectives and requirements of the audit engagement; (2) the size of the entity, and the complexity of the audit engagement; (3) the soundness and effectiveness of the entity’s internal control systems; (4) the truthfulness, legitimacy and completeness of the entity’s accounting records; (5) the need for directing, supervising and inspecting the work performed by the assistants; and (6) the type of audit opinion. Article 7 Audit working papers prepared by the CPA should include the following basic contents: (1) name of the entity; (2) name of each individual item being audited; (3) date or period covered in respect of each individual audit item; (4) details of audit procedures performed; (5) audit marks and their explanations; (6) audit conclusions; (7) index and page numbers; (8) the name of the prepare and the date of preparation; (9) the name of the reviewer and the date of the review; and (10) any other matters that require explanation. Article 8 The CPA should document the source of information which has been included in the audit working papers and has been provided or prepared by the entity or other third parties. The CPA should perform the necessary audit procedures on this information and document the procedures in the audit working papers. Chapter 3 Preparation and review Article 9 Audit working papers normally include: (1) legal information concerning the establishment of the entity, such as copies of the certificate approving establishment, business license, contracts, agreements, the Articles of Association etc., and any changes to the above documents; (2) information concerning the organisational structure and the composition of the management of the entity; (3) extracts or copies of important legal documents, contracts, agreements and minutes; (4) records of the study and evaluation of the relevant internal control systems of the entity; (5) audit engagement letter; (6) unaudited financial statements and list of audit adjustments, if any; (7) an audit plan; (8) records and information concerning the performance of specific audit procedures; (9) records of discussion and correspondence with the entity, other auditors, experts and other third parties; (10) any representations made by the entity; (11) Manuscripts, and copies, of the audit report and management letter; (12) the overall summary made by the CPA subsequent to the performance of the audit engagement; and (13) other information in relation to the completion of the audit engagement. Article 10 Audit marks can be used in audit working papers, provided that they are explained and consistently applied. Article 11 Audit working papers should have index numbers and sequential numbers. Article 12 Relevant audit working papers should be clearly cross-referenced. When information needs to be cross-referenced to other working papers, the index number of the working paper should be indicated. Article 13 The accounting firm should establish a system for reviewing audit working papers. At the time of reviewing the audit working papers, the reviewer should document his arising from the review and sign off. Article 14 If the reviewer discovers that there are problems in relation to the audit procedures performed and the audit records made, he should require the relevant person to provide explanations and follow tip. Follow-up procedures should be documented in the audit working papers. Chapter 4 Ownership and custody Article 15 Audit working papers are the property of the accounting firm engaged to perform the audit. Article 16 Audit working papers are classified into three types: (Comprehensive working papers, audit- oriented working papers and reference working papers. The term "(Comprehensive working papers" refers to audit working papers prepared by the CPA hiring the audit planning and reporting stages. They are used for planning, controlling and concluding the audit engagement as a whole and for documenting the audit opinion. The term "audit-oriented working papers" refers to audit working papers prepared by the CPA regarding his performance of specific, audit procedures during the audit implementation stage. The term "reference working papers" refers to the audit working papers used merely for reference which are prepared by the CPA in the course of the audit. Article 17 The CPA should set up appropriate audit files to keep in proper order the different types of audit working papers. Article 18 Audit files are classified into permanent audit files and current audit files. The term "permanent audit files" refers to those audit files which contain information that is not frequently changed and is referred to over a long period of time. They also contain information of continuing relevance to, or with a direct impact on, succeeding audits. The term "current audit files" refers to those audit files, the contents of which vary frequently. They are primarily used for the audit of the current period and for reference in the next subsequent period. Article 19 The accounting firm should establish a system to ensure the safe custody and the completeness of the audit files. Article 20 The time limits for maintaining audit files are as follows: (1) at least ten years from the date the audit report was issued, for "current audit files"-, (2) indefinitely for "permanent audit files" in respect of current clients; and (3)for permanent audit files related to an entity which is no longer a client of the accounting firm, the period of retention is the same as for the most recent current audit files. Article 21 Upon the expiration of the period for retaining an audit file, the accounting firm can decide whether to destroy the file or not. Necessary procedures, as specified by the relevant regulations, should be followed when such audit files are destroyed. Chapter 5 Confidentiality and consultation Article 22 The accounting firm should establish a system to ensure the confidentiality of audit working papers, and should treat confidential business information as classified. However, consultation of audit working papers dose not constitute a violation in Confidentiality in either of the following circumstances (1) when carried out by the court, the procuratorate or other departments, in accordance with the law and after completion of all necessary legal procedures; or (2) when the CPA’s professional work is inspected by the Chinese Institute of Certified Public Accountants ("CICPA") and its local branches. Article23 The CPA of another accounting firm, having been approved by the entity, may request consultation of the audit working papers when: (1) such accounting firm is engaged by the entity to replace the existing one; (2) a set of consolidated financial statements is Subject to audit; (3) a joint audit is performed; or (4) in other situations where the accounting firm considers it reasonable. The accounting firm which maintains the audit working papers should provide appropriate assistance to those who request to consult them. The accounting firm should decide, on the basis of the contents and nature of the audit working papers, whether a request to consult the audit working papers should be allowed and whether the relevant contents may be copied or extracted. Article 24 Any consequences arising from the misuse of the audit working papers by the people who have gained access to them are not the responsibility of the accounting firm which owns the audit working papers. Chapter 6 Supplementary provisions Article 25 The CICPA is responsible for the interpretation of this standard. Article 26 This standard takes effect from 1 January 1996.