The permanent audit file (Perm File) consists of documents or contracts of audit significance beyond the current audit period. Audit documentation is a crucial aspect of planning and performing audits. There is a saying that if the work is not documented, it’s called not done at all. So, the documentation in the audit files shall be robust.
The above-cited reasons are enough to stress the importance of audit documentation and Permanent files or Perm Files.
What does a Permanent audit file comprise?
- Entity Incorporation Documents include Membership Interest Purchase Agreement, Memorandum of Association, Articles of Association, etc.
- Agreements and contracts entered by the entity, such as Long-term debt Contracts, Purchases, Sales Agreements, and operational agreements such as security contracts and housekeeping contracts, are long-term in nature. In other words, they will last more than a year. So, those are part of the Perm Files.
- Engagement Letters
- Lease Agreements
- Employee Stock Options Agreements
- Board of Directors Minutes, if those have significance to subsequent audit periods (For example, Minutes that have resolutions relating to signature authority policy. This is the policy that lists out the competent persons to authorize transactions of different value)
Still Confused?
Understand how a signature authority policy looks with the attached example here.
Practical Insights of Permanent Audit File:
1) Ensure that only one audit staff/personnel is accountable for maintaining the Permanent Audit Files.
2) Ensure the Perm files are accessible to all team members. The best way is to have them on a cloud platform that makes them accessible in real time.
3) We can number Perm Files like PF 1, 2, etc. If a perm file has slight changes (let’s say the debt contract period is extended), we can number such amendments/changes as PF 1A.
Also read: Interim Audit.
Why do we need to number Perm Files?
Perm Files are referred to within the current year’s audit files. Let’s say, Borrowing Contracts are referred to within the debt account balance testing work paper.
4) Consider adding a prefix of the account balance to the Perm Files number, like PFD 1, for debt perm files. An even better idea is to distinguish the numbering for each account balance.
How about an example?
We can designate the 1000 series, 2000 series, 3000 series, and 4000 series for assets, debt, expenses, and revenues. If we want to refer to a Long-term debt agreement, we can refer to it as PFD 2001, PFD 2002, etc.
Prepare an index file to list the Perm files. This Index would make it easy to track down the agreements/contracts.
5) Prepare a summary of the Perm files that includes the important terms and conditions. If there are recurring types of contracts, we can probably build templates for each type of contract.
Conclusion:
Permanent audit files are the files that have significance for periods beyond the audit period. Such files are to be retained for reference. Leverage the above practical insights to save those perm files for later use properly.
