What goes into the permanent file?
The audit file comes in many shapes and forms, all of which you classify as either permanent or current. Knowing the difference between the two is important, because correct allocation of audit evidence to the permanent or current file allows all CPA firm users to know exactly where to go if they need
to access a specific document. This is particularly important if you aren't available that day or have left the firm. You carry forward documents in the permanent file from year to year. They form the base for planning the subsequent year's audit. Most of the info in the permanent file doesn't change from one year to the next. Here are documents for you to keep in the client's permanent file: Copies of the company's
incorporation documents: Incorporation is done with the Secretary of State for the main business location. The business has to file articles of incorporation, which cover the basics about the company including its name, address, the stock it issues (what type and how many shares), and the registered agent (the contact person if the Secretary of State has any questions). Your client should have a copy of this information on file. The type of information a state needs
for the incorporation is a matter of state statute. The information requirements are available online by doing a search for the specific state's name and the word statute. If you scroll through the various titles, you should find one called business organizations or something similar. You can find out all you need to know about your client's incorporation requirements if you think some documents are missing. Chart of accounts: You use this numerical listing of all the client's asset, liability, equity, revenue, and expense accounts as a sort of road map to figure out where certain accounts should be showing up in your client's general ledger. The general ledger shows all the accounts in the chart of accounts and lists what transactions affect them during the year under audit. Organization chart: This document shows the levels of management from the head honcho all the way down to the lowest staff member. Accounting procedures manual: The manual provides an overview of how the accounting functions of a company work. It provides a guide to the responsibilities of each accounting department and how accounting employees should do their jobs. Copies of important leases or contracts: You should have a copy of the contracts for any property, plant, or equipment the company leases. You use this information to verify rent expense on the financial statements. Any major contracts with suppliers, customers, or unions are also kept in the permanent file. Internal control documentation: Any records you keep or write-ups you do during the evaluation of the company's internal controls are kept in the permanent file. Some CPA firms may keep this information with their current file, rather than in the permanent file. Verify correct placement with your audit supervisor. Stock and bond issuances: Corporations bring in nonoperating cash in two different ways: They sell their stock, which is equity, or they enter into a loan agreement (debt). These documents list the number of shares outstanding and give information on the terms of any bonds or other company debt. Prior years’ analytical procedures: Use these documents to see whether plausible and expected relationships exist in both financial and nonfinancial data from year to year. Use trend analysis, which compares current financial figures (like gross receipts) to the same figures in the prior year. Ratio analysis is also an analytical procedure. Ratio analysis compares certain balance sheet and income statement accounts — for example, inventory turnover, which is Sales / Average inventory. The current audit fileYou'll also have a current file, which contains all your work on this year's audit. Here are some examples of things you expect to see in the current file:
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What goes into an audit file?Audit files contain records that comprise the audit documentation for a specific engagement or client. Usually, permanent audit files include information about a client's legal and organizational structure. Current audit files contain documents relating to a particular engagement or period about a client.
Which accounting data file is permanent?Master files are files of a fairly permanent nature, e.g., customer ledger, purchase ledger, inventory pay roll etc. They include some information which is continuously updated by recent transactions.
Which of the following can be found in a permanent audit file?A permanent audit file contains information on the following: The legal and organizational framework of the client's entity, for example, the Memorandum of Association (MOA) and Articles of Association (AOA) in the case of a company.
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