Audit Notebook

Audit Note Book is a register maintained by the audit staff to record important points observed, errors, doubtful queries, explanations and clarifications to be received from the clients. It also contains definite information regarding the day-to-day work performed by the audit clerks. In short, audit note book is usually a bound note book in which a large variety of matters observed during the course of audit are recorded. The note book should be maintained clearly, completely and systematically. It serves as authentic evidence in support of work done to protect the auditor against any legal charge initiated against him for negligence. It is of immense help to the auditor in preparing audit report. It also acts as a valuable guide for conducting audit for future years.

E.L. Kohler formulated a detailed definition for the term. According to him,

“Audit note book is a record, used chiefly in recurring audits, containing data of work done and comments outside the regular subject matter of working papers. It generally contains such items as the audit programme, notations showing how sections of the audit are carried out during successive examinations, information needed for the auditor’s office and for staff administration, personnel assignment, time requirements and notations for use in succeeding examination”.

Contents of Audit Note Book

An audit notebook generally consists of the following information:

1. The nature of the business and summary of important documents relating to the constitution of the business such as Memorandum of Association, Articles of Association or Partnership Deed, etc.
2. A list of the books of accounts maintained.
3. Particulars as to the system of accounts followed and the system of internal check in force.
4. Names of principal officers, their duties and responsibilities.
5. Progress of audit work together with the dates on which the work was undertaken and completed.
6. Extracts from correspondence with different authorities.
7. Audit programme.
8. Allocation of work among different audit staff.
9. All queries which have not been clarified so far.
10. Lists of missing receipts, vouchers, bills, etc.
11. Any special point arising during the course of audit to which the attention of the auditor must be drawn.
12. Particulars of cash balances, investments, fixed deposits, and the reconciliation statements of principal bank accounts.
13. Extracts of the minutes and contracts affecting the accounts.
14. Record of audit work done with dates of commencement and of completion.
15. Particulars regarding the financial policies followed by the business.
16. All mistakes and errors discovered.
17. Points to be incorporated in the audit report.
18. Points, which need further explanations and clarifications.
19. All important matters for future reference at subsequent audits.
20. Information of permanent nature relating to the business and notes of all important technical transactions.

These matters are very useful in preparing the audit programmes for subsequent audits.

Advantages of Audit Note Book

1. Facilitates Audit Work

It facilitates the work of an auditor as all important details about the audit are recorded in the note book which the audit clerk cannot remember everything at all the time. It helps in remembering and recalling the important matters relating to the audit work.

2. Preparation of Audit Report

Audit note book helps in providing required data for preparing the audit report. An auditor examines the audit note book before preparing and finalizing the audit report

3. Serves as Documentary Evidence

Audit note book serves as a documentary evidence in the court of law when a suit is filed against the auditor for his negligence.

4. Serves as a Guide

When a audit assistant is changed before the completion of audit work, audit note book serves as a guide in completion of balance work. It also acts as a guide for carrying on subsequent audits.

5. Evaluating Work of Audit Staff

It helps to assess the work performed by the audit staff and helps in evaluating their level of efficiency.

6. Fixation of Responsibility

Audit note book helps in fixing responsibility on concerned clerk who is responsible for any undetected errors and frauds in the course of audit.

7. No Dislocation of Audit Work

An audit note book contains all important details about audit hence any change in the audit staff will not disturb or dislocate the audit work.

Disadvantages of Audit Note Book

1. Fault-finding Attitude

It leads to development of a fault-finding attitude in the minds of the staff.

2. Misunderstanding

Very often maintenance of audit note book creates misunderstanding between the client’s staff and the audit staff.

3. Improper Preparation

Since it serves as evidence in the court of law, it needs to be prepared with great caution. When the note book is prepared without due care it cannot be used as evidence against the auditor for negligence.

4. Adverse Effects on Subsequent Audits

Since audit note book is used in performing subsequent audits, any mistakes in the note book may have adverse impacts on the next audit.