Guidance regarding preparation of working papers and their importance fall under ISA 230: Documentation. Working papers basically refers to material prepared by and for, or obtained and retained by the auditor in connection with the performance of the audit. Can be in the form of paper, film, electronic media or other media. These are important for the following reasons:
i) They assist in the planning of the audit. Current year‘s working papers will be used to plan subsequent years‘ audit.
ii) They assist in the supervision and review of the audit work. Audit assistants will use the working papers as evidence of work done.
iii) They assist incoming auditors to assess the position of the new client before they begin their actual audit work.
iv) Working papers record the evidence resulting from the audit work performed to support the auditor‘s opinion.
v) In the event of litigation against the auditor, the working papers will serve as evidence to prove work done by both an employee of an audit firm and the firm itself.
vi) Working papers minimize duplication of audit effort because whatever is done is documented and cannot be repeated.
vii) They are also useful in determining audit fees payable by the client as they indicate what has been done by whom and how long it took, all of which serve as a basis for charging.
viii) In the event of catastrophe, working papers will serve as material to support a plea for compensation by the insurance company.