Permanent audit file contain documents to be used by auditors throughout their professional association with the client. It’s supposed to contain content permanent in nature that remains relevant for all the years’ auditors and client work together.
For instance, long-term agreement with the client, risk assessment documents, engagement letter, M&A, details regarding appointment as auditors, and board minutes, etc.
Further, there is a difference between the current year file and the permanent file. In the current year file, supports and documents for the current year’s transactions are kept. For instance, lead schedule supports for the major transactions and evidence collected from the client during the performance of the audit procedures.
Also read, what is bank confirmation.
On the other hand, here is the list of documents/supports expected to be in the permanent audit file.
checklist
- Memorandum and article of association for an audit client.
- Engagement letter.
- Client acceptance risk assessment form.
- Accounting manual/comprehensive risk assessment manual adopted by the client.
- Opening accounts – signed by previous auditors.
- Documents related to leasehold land, major sales agreement, major purchase agreement, licenses, regulatory permission, and, etc.
- System notes and assessment of the initial risk.
- Copy of agreement with the shareholders.
- Accounting policies implemented by the client.
- Listing documents with stock exchange (if applicable)
- Firm’s assessment of independence with the audit client.
The information and details in the permanent audit file are crucial, and it’s the auditor’s responsibility to take care of the access. If auditors fail to do so, they may have to face legal circumstances.
Further, appropriate filing and content management is one of the features of the quality management of audit firms. Further, big four firms have a centralized policy to monitor quality management and other aspects. Likewise, the local regulator can also assess if the file management is adequate. In addition to this, file management is considered to be one of the rating factors by the regulators.
Difference between current audit file and permanent audit file
The current audit file contains documents and support for the current year. It includes leads, account balance, supports, evidence, and any other documents prepared during client field or desk audits. On the other hand, permanent audit files contain documents that remain relevant for future audits as well.
For instance, a document of leasehold land can be inserted in the permanent audit file. It’s because the land is expected to remain with the business for the long term and can be relevant support for future audits.
Similarly, audit firms assess the client’s risk before acceptance to assess if they would be able to obtain sufficient and appropriate audit evidence to form their opinion on the set of financial statements. The business risk is not expected to fluctuate significantly as operations of the business remain the same. Hence, initial risk assessment can be used in future audits and becomes part of the permanent audit file.
Further, auditors place service invoices in the permanent audit file to ensure they can track their fees and things remain in control.
