Client: Year/Period End: PERMANENT AUDIT FILE INDEX Annual update confirmation Business details 1. Background to client 2. Financial History 3. Register of laws and regulations 4. Related parties 5. Group structure 6. Organisation chart 7. Other details of the business Systems and controls 8. Systems notes 9. Controls assessment 10. Business risk assessment 11. Financial statement level risk assessment 12. Fraud and error risk assessment 13. Schedule of significant risks 14. Letters of comment sent Engagement details 15. Letter of engagement 16. New client checklist Statutory information 17. Memorandum and articles of association 18. Certificate of incorporation 19. Annual return 20. Other company secretarial 21. Share capital history Bank accounts, loans and agreements 22. Bank accounts and signatories 23. Borrowing facilities and loan covenants 24. Copy of bank facility letter 25. Copy of significant loans and agreements Other information 26. Details of pension schemes 27. Property, plant and equipment register 28. Client authorities for obtaining information from third parties 29. Other information of continuing interest 30. Statutory accounts PCP Audit Programme - Version 7.0 March 2016 Permanent File Medium and large sized companies International Version
Client: Year/Period End: ANNUAL UPDATE CONFIRMATION Year Updated by Reviewed By Initials Date Initials Date PCP Audit Programme - Version 7.0 March 2016 Permanent File Medium and large sized companies International Version
1 BACKGROUND TO CLIENT Company name and trading name Company numbers etc. Registered number VAT or sales tax number Accounting period end VAT or sales tax periods Date of incorporation Date commenced trading Business address Contact numbers Phone Fax E-mail Website Linked in Twitter Facebook Registered office address Location of accounting and statutory records Directors names and areas of responsibility
BACKGROUND TO CLIENT continued Other key personnel and areas of responsibility Nature, goals and history of business Key audit matters in previous years
BACKGROUND TO CLIENT continued Accounting Estimates Identify and list the accounting estimates relevant for the audit Document how management identifies and makes the accounting estimates noting the data on which they are based e.g. method, controls, assumptions, use of an expert Have there been any changes in circumstances during the year that may give rise to new or the need to revise existing accounting estimates? Do any of the estimates involve fair value measurement? Review the accounting estimates in the prior period and comment on their accuracy. Document whether, and if so, how management has assessed the effect of estimation uncertainty associated with an accounting estimate. Do any of the estimates constitute a significant accounting risk? PAF 13
12 FRAUD AND ERROR RISK ASSESSMENT Area of concern Comments Is this a significant risk for the audit? Y/N PAF 13 Explain any significant risks arising from recognition of income. If there is no risk specify exactly why this is the case. Does validity of expenditure constitute a significant risk? If not explain why this is the case. Do any of the accounting policies in use present opportunities for fraud and error? Ensure that the threat of management override has been covered by: 1. Testing the appropriateness of journal entries both during the year and at the year-end. Details of the tests and the specific items tested must be recorded; 2. Reviewing accounting estimates for any evidence of bias; 3. Evaluating any non routine or unusual transactions for the risk of fraud; 4. Evaluating any transactions that lack commercial substance or are outside the normal course of business. 5. Performing any other tests necessary. If the owner/manager is involved in the day to day running of the business explain what impact this has on potential fraud and error. Have analytical review procedures highlighted any potential problems? ISA 240 (UK and Ireland) requires that the risks of material mis-statement due to fraud are treated as significant risks
FRAUD AND ERROR RISK ASSESSMENT continued Area of concern Comments Is this a significant risk for the audit? Y/N PAF 13 Is the lifestyle of the owners/managers consistent with their business income? Is there an incentive and opportunity for management to manipulate profits? Is the company under significant financial pressure due to poor performance or liquidity problems? Is there usually adequate documentation to support transactions in the business? Are there a significant number of related parties and related party transactions? Does the company take adequate steps to safeguards its assets? Are there significant transactions with businesses without commercial substance and/or for whom we do not act as auditors? If there are then this is automatically a significant risk. Are there other related businesses for which we do not act? Are there any trusts in which the directors, employees or the entity have an interest? ISA 240 (UK and Ireland) requires that the risks of material mis-statement due to fraud are treated as significant risks
12 FRAUD AND ERROR RISK ASSESSMENT continued Area of concern Comments Is this a significant risk for the audit? Y/N PAF 13 Are there a large number of business locations and/or a wide geographical spread of activities? Does the business operate with an overly complex organisational structure involving numerous or unusual legal entities, managerial lines of authority, or contractual arrangements without apparent business purpose? Are there significant cash transactions? If IFRS has been adopted for the first time, specify how the risk of fraud and error has been considered. In particular, consider potential tidying up of the balance sheet. If IFRS has been applied for the first time, review the validity and completeness of transitional arrangements very closely and consider and list ways in which management could manipulate the figures. Explain why there is no risk arising from the presence on the payroll of fictitious employees. Are there any other aspects of payroll which are susceptible to fraud and error? List any other areas within the business which have not already been covered and which are susceptible to fraud and error e.g. inventory, property, plant and equipment etc.?
12 FRAUD AND ERROR RISK ASSESSMENT continued Action (Detail any issues that need to be raised with management in respect of weaknesses in the control environment) Conclusion Prepared by:
13 SCHEDULE OF SIGNIFICANT RISKS ISA 315 defines a significant risk as one which in the auditor s judgment requires special audit consideration. It is important that these risks are identified and understood at the planning stage of the audit. Nature of risk Financial statement level risk PAF 11 Substantive tests What are the controls? Are substantive tests enough? Tests of operational effectiveness Laws and regulations PAF3 : Other Business Risks PAF10 : Related parties PAF 4
13 SCHEDULE OF SIGNIFICANT RISKS continued Nature of risk Substantive tests What are the controls? Are substantive tests enough? Tests of operational effectiveness Accounting Estimates PAF 1 Fraud and error risk PAF 12 Assertion level risk B5 Action (Detail here any issues that need to be raised with management in respect of weaknesses in the control environment) Conclusion Prepared by:
AUDIT FILE INDEX CONTROL SECTIONS A B C ACCOUNTS AUDIT PLANNING AUDIT COMPLETION AUDIT SECTIONS D E F G H IA IB IC J K L M N O P QA QB QC R S EVENTS AFTER THE BALANCE SHEET DATE AND GOING CONCERN INTANGIBLE ASSETS PROPERTY, PLANT AND EQUIPMENT INVESTMENTS IN GROUP AND ASSOCIATED UNDERTAKINGS FINANCIAL ASSETS AND OTHER INVESTMENTS INVENTORY WORK IN PROGRESS CONTRACTS WITH CUSTOMERS RECEIVABLES AND PREPAYMENTS BANK BALANCES AND CASH PAYABLES AND ACCRUALS LONG TERM LOANS AND DEFERRED INCOME PROVISIONS FOR LIABILITIES AND CHARGES, CONTINGENT LIABILITIES AND FINANCIAL COMMITMENTS CAPITAL AND RESERVES DIRECT AND INDIRECT TAXATION AND DEFERRED TAXATION INCOME EXPENDITURE PAYROLL RELATED PARTY TRANSACTIONS GROUP ACCOUNTS AND CONSOLIDATION
A ACCOUNTS 1 Final sign off 2 Final accounts 3 Audit journals and reconciliation between draft accounts and final accounts 4 Tax computations 5 Letter of representation 6 Reports to management
Completed by: Ref: A1 FINAL SIGN OFF 1 Are we satisfied that the directors representations can be relied upon? 2 Has a post balance sheet events review been undertaken covering the period up to the date that the audit report is being signed? 3 Ensure a signed representation letter has been received back from the client. 4 Do the working papers and the tax computation reflect the final adjustments? 5 Have all final journals been recorded and processed to produce a closing trial balance agreeing with the accounts? 6 Has the final copy of the accounts been referenced to the file to ensure all lead and support schedules reflect final adjustments? 7 Is the firm willing and able to seek reappointment as auditor for the next period? Yes/No Yes/No Yes/No Yes/No Yes/No Yes/No Yes/No Ref Comments Initials D1 C13 I authorise the signing of the audit report. Signed...Audit Engagement Partner Date... Engagement Quality Control Partner (if applicable) Signed... Engagement Quality Control Partner... Date
B AUDIT PLANNING 1 Audit planning control checklist 2 Independence questionnaire 3 Client meeting minutes 4 Preliminary analytical review 5 Assessments of risks at the assertion level 6 Materiality 7 Sample size calculation 8 Audit strategy memorandum 9 Timetable 10 Budget
Completed by: Ref: B1 AUDIT PLANNING CONTROL CHECKLIST Issue Ref. Comment Initial and date 1. Determine whether the financial reporting framework to be adopted in the preparation of the financial statements is acceptable or not. 2. Ensure there is an up to date, signed letter of engagement for the assignment. Consider the adequacy of the contents particularly if any circumstances have changed, most notably regarding the implementation of IFRS. In particular management must agree that it acknowledges and understands its responsibility as outlined in paragraph 6(b) of ISA 210: For the preparation of the financial statements: and For adequate internal controls and for making available to the auditor all relevant information and for unrestricted access during the audit to staff. If the client is unable to satisfy the criteria referred to above or that outlined in test 1 then the assignment should not be accepted. 3. If IFRS has been applied for the first time, then ensure the engagement letter clarifies that the directors are responsible for: Analysing the impact of the introduction of IFRS on the business; Developing plans to mitigate the effects identified; Assessing any impact on the going concern assessment; and Preparation of financial statements under IFRS, including comparative figures, and the disclosures needed to give a fair presentation and true and fair view. 4. If a limitation on the scope of the auditor s work has been imposed by management consider whether the appointment can be accepted or not.
5. Document the impact of any change in the terms of the audit after the audit has commenced. Ensure that it is in line with ISA 210.
Completed by: Ref: B1 AUDIT PLANNING CONTROL CHECKLIST continued Issue Ref. Comment Initial and date 6. Has ongoing monitoring of the business relationship taken place throughout the audit to satisfy ourselves that all transactions carried out by the client are consistent with our knowledge of the client and their risk profile? PAF 1 7. If we have not met the client have we carried out enhanced client due diligence or enhanced ongoing monitoring? PAF 1 8. Document how the firm has considered the adequacy of the opening balances, as required by ISA 510 and the comparatives as required by ISA 710, particularly if this is the first year of audit by the firm or the first year of application of IFRS. Ensure that this assessment covers any accounting estimates made in the prior period. 9. If the firm were not the auditors in the previous year, has consideration been given to requesting access to the previous auditor s working papers if this is allowed? If these are requested, the findings of the review must be documented. If it is decided not to request access, the rationale for this decision should be carefully explained, along with a detailed description as to how the adequacy of the opening balances and the other requirements of ISA 510 will be complied with and how an understanding of the business, as required by ISA 315 will be achieved. 10. If IFRS has been applied for the first time, then ensure that the actual transition process includes Preparation of an opening Statement of Financial Position with an explanation for each adjustment to opening equity; Identification, to the extent practicable, of any adjustments to opening equity that are due to errors under previous GAAP and separation of these from transitional arrangements; Preparation of the figures for the comparative Statement of Financial Position under IFRS; Preparation of the figures for the comparative period under IFRS; and Preparing the first new IFRS financial statements.
Completed by: Ref: B1 AUDIT PLANNING CONTROL CHECKLIST continued Issue Ref. Comment Initial and date 11. Where any service organisations have been used ensure that the requirements of ISA 402 have been followed. 12. If expertise in a field other than accounting or auditing is necessary to obtain sufficient appropriate audit evidence consider whether to use the work of an auditor s expert. Ensure that the requirements of ISA 620 are followed. 13. Confirm that the team and experts who will be used have the competence and capability to complete the assignment. 14. Ensure that an audit planning letter has been sent to the client. 15. If an engagement quality control review is required ensure that an appropriately qualified individual has been appointed to do it. 16. Confirm that a bank confirmation letter has been received. Conclusion Prepared by Reviewed by Date Date
Completed by: Ref: B2 INDEPENDENCE QUESTIONNAIRE Issue 1. Undue dependence on a client Do the total fees (audit and non-audit) of this client/group of clients comprise a large percentage of the firm s total income e.g. more than 10%? If yes, specify the value as a percentage of total fees for the last three years and assess the potential threat arising. Has the client been referred to the firm by a third party such as a lawyer or company formation agent etc.? If yes, does this source refer other audit clients to the firm and if so indicate the value as a percentage of total fees of the practice for the last three years? 2. Overdue fees Are there any significant overdue fees for this client? Could these overdue fees when taken with the fees for the current period be regarded as a loan? Yes, No or N/A Where yes specify the value of the overdue fees: 3. Actual or threatened litigation Is there any actual or threatened litigation between the firm and the client? Where yes give brief details:
Completed by: Ref: B2 INDEPENDENCE QUESTIONNAIRE continued Issue 4. Associated firms and influences outside the practice Could any pressure be exerted on the firm by associated practices or from external sources such as bankers, lawyers or other parties? Where yes give details. Does this impact on the firm s Yes, No or N/A independence? Is the audit undertaken on behalf of another firm of accountants? Where yes give details. Does this impact on the firm s independence? Are there any arrangements in place with lawyers or entities which provide nominee shareholder, nominee director or company secretarial services such that there is a risk that a network could be considered to exist as referred to in paragraph 290.15 of the IFAC Code of Ethics? This issue could lead to an insurmountable threat to independence. Where yes give details. Does this impact on the firm s independence? 5. Employment, family and other personal relationships
Have you or any of your partners or staff or any family members ever worked for the audit client? This issue in particular could lead to an insurmountable threat to independence. Where yes give details: Have any of the audit client s staff ever worked for the audit firm? Where yes give details: Completed by: Ref: B2 INDEPENDENCE QUESTIONNAIRE continued Issue Yes, No or N/A Do you or any of your partners or staff or any family members have any mutual business interests with the client or with an officer or employee of the client? Where yes give details: Employment, family and other personal relationships continued Do you or any of your partners or staff have a personal or family relationship with any of the company owners, directors or senior staff? Where yes give details:
Do you or any of your staff or family members have any financial investment in the company in respect of the following: Any beneficial interests in shares or other investments? Any beneficial interests in trusts? Any trustee investments or nominee shareholdings? Where yes give details: You should note that yes answers to the above question may prevent the firm undertaking the audit. Have you acted for the client for a long time? If so is your appointment in accordance with local ethical rules? If the answer is yes, then suggested safeguards include hot file review, rotation of the Audit Engagement Partner, second partner review or informing the client of the possible threat to objectivity, and why you do not believe that the threat is significant. Where yes specify action to be taken:
Completed by: Ref: B2 Issue 6. Voting on audit appointments Where a partner or staff member holds shares in any capacity in an audit client, have they voted at any general meeting of the company in relation to the appointment, removal or remuneration of the auditors? Where yes give brief details: Yes, No or N/A 7. Loans Have you or your staff or anyone closely connected with the practice: Made a loan to or guaranteed borrowings by the client? Accepted a loan from the client? Had borrowings guaranteed by the client? Where yes give brief details: 8. Hospitality Have you or any of your staff accepted any material gifts or services on favourable terms or received undue hospitality from the client? Where yes give brief details: Provision of other services to clients Does the firm undertake non-mechanical accounting work for the client (e.g. writing up books of prime entry)? Where yes give brief details: Does the firm undertake mechanical accounting work for the client (e.g. Statutory accounts, posting for prime entry, adjustments)? Where yes give brief details:
Does the firm undertake tax planning and compliance work for the client? Where yes give brief details:
Completed by: Ref: B2 INDEPENDENCE QUESTIONNAIRE continued Issue Provision of other services to clients continued Has the firm acted as an advocate for the client in any circumstances? Where yes give brief details: Yes, No or N/A Has the firm been involved in the provision or implementation of any IT systems for the client? Where yes give brief details: Are any other non-audit services provided to the client/group? Where yes give brief details: 10. Tight reporting deadlines Are there any tight reporting deadlines which the firm must comply with when completing the audit? Where yes give brief details: 11. Other Services Are there any other issues or have any other services been provided to the client that may cause a threat to the firm s objectivity or independence? Where yes give brief details:
Completed by: Ref: B2 INDEPENDENCE QUESTIONNAIRE continued Indicate why you believe that your independence is not threatened for this client. If threats exist, highlight clearly the safeguards to be implemented: Indicate how any threats and the proposed safeguards have been communicated to the client: Conclusion: Audit Engagement Partner Second Partner Conclusion (where necessary): Date
Completed by: Ref: B3 CLIENT MEETING MINUTES Attendees: Venue: Issues Reference Reviewers initials and comments Business risk Record below any issues that have changed resulting in an amendment to the permanent file documentation. Business objectives Business strategy Business risks and controls Related Parties Record below any changes and confirm that management understands what a Related Party is. Type and purpose of transactions
Completed by: Ref: B3 CLIENT MEETING MINUTES continued Issues Reference Reviewers initials and comments Fraud and error Controls in place to prevent and detect fraud and error. How does the client discourage fraud? Areas where the client feels there could be fraud and error. Brief details of any fraud and error encountered. Method of communication of fraud and error issues to employees.
Completed by: Ref: B3 CLIENT MEETING MINUTES continued Issues Reference Reviewers initials and comments Accounting Estimates How are estimates made? What are the underlying assumptions? Have there been any changes requiring a new estimate? Preliminary analytical review Brief details of expectations.
Completed by: Ref: B3 CLIENT MEETING MINUTES continued Issues Reference Reviewers initials and comments Going concern Detail any concerns. Detail briefly steps taken by client to confirm the business is a going concern. Reporting Deadlines If applicable, issues arising from implementation of IFRS Other issues
Completed by: Ref: E1 INTANGIBLE ASSETS APPROACH SUMMARY As a result of the issues considered during the planning and consideration of the risk register on the Permanent Audit File, note here any significant risks associated with the audit of this section: Consider the best approach from the table below to be adopted to ensure that the objectives have been achieved: Assertion Substantive procedures Analytical review Existence Rights and obligations (ownership) Occurrence Completeness Accuracy Valuation and allocation Cut off Classification and understandability Tests of operational effectiveness of controls π Sample size π It is mandatory to test the operational effectiveness of controls over areas of significant risk in those cases where substantive tests alone are not enough. In other areas it may be possible to use it to reduce sample sizes.
Completed by: Ref: E1 INTANGIBLE ASSETS APPROACH SUMMARY continued Planning conclusion: Risk: Low Medium High Prepared by: Final conclusion: Prepared by:
Completed by: Ref: E3 WORKING PAPER INTANGIBLE ASSETS Test objective: To consider the items that may have been covered through accountancy work And To form an opinion as to whether all intangible assets have been reflected at their proper value and are beneficially owned by the company Work performed: 1. Consider the assessments of risk and materiality performed at the planning stage, and document the impact of any changes in these assessments due to evidence coming to light since the planning was performed. 2. Agree opening balances to last year s accounts. 3. Obtain and check, or prepare, a lead schedule for the current year s figures. 4. Enquire into and make notes of reasons for any major variations from expectations. 5. Agree details of additions to supporting documentation. 6. Agree details of disposals to supporting documentation. 7. Review documents of title and ensure that they are in the name of the company. 8. Review any amortisation on assets with finite useful lives and ensure that it is in line with IAS 38 and with the stated accounting policy (and is reasonable). 9. Ensure no amortisation has been provided on goodwill but that an annual impairment review has been performed. 10. Consider any impairment review undertaken by the directors and determine whether it is in compliance with IAS 36 and IAS 38 and whether there is a requirement for an adjustment to the value. 11. Ensure any research and development expenditure has been correctly accounted for in line with IAS 38. Reference Risk: Sample size: Method of sample selection:
Completed by: Ref: E3 WORKING PAPER INTANGIBLE ASSETS continued Summary and evaluation of results Reference Conclusion (include comment on impact on report where necessary)
Completed by: Ref: E4 WORKING PAPER INTANGIBLE ASSETS Test objective: To form an opinion as to whether all intangible assets exist at a given date And To form an opinion as to whether all transactions have been allocated to the correct accounting period And To form an opinion as to whether all transactions represent bona fide transactions of the company Work performed: Risk: 1. Consider whether any additions and disposals have been accounted for in the correct period. 2. Consider whether any additions are only being capitalised in accordance with IAS 38 (in particular with regard to goodwill and with regard to development costs). 3. Vouch supporting documentation in respect of any additions and disposals during the year. Summary and evaluation of results Reference Conclusion (include comment on impact on report where necessary)
Completed by: Ref: E5 WORKING PAPER INTANGIBLE ASSETS Test objective: To form an opinion as to whether there are any unrecorded intangible assets and cut off is correct Reference Work performed: 1. Scrutinise accounting records and any other relevant documentation for large and unusual transactions, paying particular attention to whether all similar items have been accounted for correctly. 2. Review transactions around year-end to ensure cut off is correct. Risk: Summary and evaluation of results Conclusion (include comment on impact on report where necessary)
Completed by: Ref: E6 WORKING PAPER INTANGIBLE ASSETS Test objective: To form an opinion as to whether all intangible assets have been reflected at their proper value Work performed: 1. Consider and assess the reasonableness of management s assessment of the useful economic life. 2. Establish if an impairment review has been carried out. If so assess its reasonableness. If not establish if one is required and if so request that one is carried out. Risk: Summary and evaluation of results Reference Conclusion (include comment on impact on report where necessary)
Completed by: Ref: E7 WORKING PAPER INTANGIBLE ASSETS Test objective: To form an opinion as to whether all intangible assets have been disclosed, classified, valued and described in accordance with the applicable reporting framework Reference Work performed: 1. Consider whether the accounting treatment and disclosures are in accordance with IAS 38. 2. Use an appropriately tailored disclosure checklist. Risk: Summary and evaluation of results Conclusion (include comment on impact on report where necessary)
Completed by: Ref: E8 WORKING PAPER INTANGIBLE ASSETS Test objective: To form an opinion as to whether all intangible assets belong to the client at a given date. Work performed: 1. Obtain and inspect documents of title verifying ownership e.g. purchase details for patents and ensure that they are in the name of the company. Risk: Summary and evaluation of results Reference Conclusion (include comment on impact on report where necessary)