As of 3.7.12 I recommend putting the header images. Logo and Favicon in an external file - using the new 'Image Locations' option - and then doing automatic upgrades (after doing a backup of course).
There are two ways to update Atahualpa to a newer version
1) use the WordPress automatic update or
2) Manually update the theme
Doing an automatic upgrade is simpler but no matter which way you do it BACKUP YOUR DATABASE AND WP-CONFIG FOLDER FIRST
1) Use the WordPress automatic update
When you do an automatic upgrade, WordPress does it's best to replace the existing files with the latest version that it knows about.
That sentence says it all. Everything in the theme folder is deleted and the new code is moved in. So if you had loaded some images to the 'header' folder - gone. If you added a favicon - gone. if you changed some of the actual code - gone. In addition, if your server is under a heavy load at the time you are doing the automatic upgrade, you session could time out and the upgrade could be partially done, leaving it unusable. And lastly, it takes some time from when a new version is submitted to WordPress, till it actually shows up (they review things) so if a new version goes up today, it may be a week (or more) before you see it.
Changes done via the theme options are stored in the WordPress database.
Any changes you have actually made to the code (the theme code) you will have to redo.
2) Manually update the theme
By manually installing the new version, you can actually have multiple versions of the theme in the theme picker. This allows you to 'try out' the new version and switch back to the old version if you have an issue. So here is a suggest list of steps to take to install a new version of the theme.
A) Do a backup.
Before any major upgrade (wordpress/theme/plugin) you should always do a database backup so you can recover back to the point in time before making the change. I also recommend backing up wp-config.php and the wp-content folder (contains your themes, plugins and uploads) on a periodic basis. These can be used it the event of a major disaster to help recover your site
B) Download the latest version of the theme to your computer
go to http://wordpress.bytesforall.com/ to get the latest version of the theme
C) unzip the file
When you unzip the theme you will see it is a folder with numbers at the end. these are the version number and allow you to have multiple copies of the theme in the WordPress themes folder
D) Copy in your images, deleting the supplied images
at this point, you can copy in your favicon, delete the theme supplied header images and add your own images into the header.
E) Check for any patches
Go to the 'New Versions, & Updating' forum (http://forum.bytesforall.com/forumdisplay.php?f=12) and review and PATCHES/BUGFIX's for the release and apply them.
F) Update any code changes you made in the previous version (code customization)
If you made any actual changes to the code (not recommended) you should review the changes and apply them to the new version
G) Add in any custom templates you use
If you are using any custom templates, put them in the new theme folder.
H) Upload the theme folder to your host
FTP the new version's folder to the 'wp-content/themes' themes folder on your host. Put each version in a new folder like atahualpa353, atahualpa364 etc. (See http://forum.bytesforall.com/showthread.php?t=4887 for an explaination of FTP)
Note: You can also re-zip the theme at this point and then use wordress and add a new theme and select this zipped file.
I) Activate the theme
Go to the WordPress Dashboard, Appearances, Themes and activate the new version. With the theme versions in different folders, you can switch between versions in case you missed something.
J) Verify URL Names in the options
You may need to change the path name to get an image if you have been using the full path name.
K) If you are using the WordPress menus, you need to go to dashboard->appearances->menu and reselect your menus
That should be it. You have manually upgraded the theme.