AUDIT

DOCUMENTATION
ISA 230 ‘AUDIT DOCUMENTATION’
Definitions
• Audit documentation
–The record of audit procedures
performed, relevant audit evidence
obtained, and conclusions the auditor
reached (terms such as “working papers”
or “workpapers” are also sometimes
used).
• Audit file
– One or more folders or other storage media, in
physical or electronic form, containing the
records that comprise the audit documentation
for a specific engagement.
Types of Audit Documentation
Audit documentation includes:
• Planning documentation
– Overall audit strategy
– Audit plan
– Risk analysis
• Audit programmes
• Summary of significant matters
• Letter of confirmation and representation
• Checklists
• Correspondence, and
• Abstract/copies of client record
• The auditor may include abstracts or copies of the entity’s
records (for example, significant and specific contracts
and agreements) as part of audit documentation.
• Audit documentation, however, is not a substitute for the
entity’s accounting records
Timely Preparation of Audit
Documentation
• Preparing sufficient and appropriate audit documentation
on a timely basis helps to enhance the quality of the audit
and facilitates the effective review and evaluation of the
audit evidence obtained and conclusions reached before
the auditor’s report is finalized.
• Documentation prepared after the audit work has been
performed is likely to be less accurate than
documentation prepared at the time such work is
performed
Form, Content and Extent of Audit
Documentation
• The form, content and extent of audit documentation
depend on factors such as:
• The size and complexity of the entity.
• The nature of the audit procedures to be performed.
• The identified risks of material misstatement.
• The significance of the audit evidence obtained.
• The nature and extent of exceptions identified.
• The need to document a conclusion or the basis for a conclusion
not readily determinable from the documentation of the work
performed or audit evidence obtained.
• The audit methodology and tools used.
Documentation of Significant Matters and Related
Significant Professional Judgments

• Judging the significance of a matter requires an objective

analysis of the facts and circumstances. Examples of
significant matters include:
– Matters that give rise to significant risks
– Results of audit procedures indicating (a) that the financial
statements could be materially misstated, or (b) a need to revise
the auditor’s previous assessment of the risks of material
misstatement and the auditor’s responses to those risks.
– Circumstances that cause the auditor significant difficulty in
applying necessary audit procedures.
– Findings that could result in a modification to the audit opinion or
the inclusion of an Emphasis of Matter paragraph in the auditor’s
report
Documentation of Discussions of Significant Matters with
Management, Those Charged with Governance, and Others

• The documentation is not limited to records prepared by

the auditor but may include other appropriate records
such as minutes of meetings prepared by the entity’s
personnel and agreed by the auditor.
• Others with whom the auditor may discuss significant
matters may include other personnel within the entity, and
external parties, such as persons providing professional
advice to the entity.
Example Contents of an audit file
• Typically, there are at least three sections:
• Planning
• Performance
• Completion
Planning
• The main element of this section is likely to be
Audit Planning Memorandum
• This document will be read by all members of
the audit team before work starts. Its contents
include:
– Background info about the client, including
recent performance
– Changes since last year’s audit [for recurring
audit]
– Key accounting policies
– Important laws and regulations affecting the
company
– Client’s trial balance [or draft financial
statements]
– Key audit risks
– Preliminary analytical procedures
– Overall audit strategy
– Materiality assessment
– Timetable of procedures
– Deadlines
Performance
Working Papers are likely to consists of:
• Lead schedules [showing total figures which agree to the
FS
• Back-up schedules
• Audit work programme detailing:
– The objectives being tested
– Work completed [Tests of control and substantive tests]
– How sampled items were selected
– Conclusions drawn
– Who did the work
– Date work was completed
– Who reviewed the work
Completion
The completion [also known as the review ]stage of an
audit has a number of standard components:
• Going concern review
• Subsequent event review
• Final analytical review
• Accounting Standards disclosure checklist
• Letter of representation
• Summary of adjustments made since the trial balance
was produced
• Summary of unadjusted errors
• Draft final FS
• Draft report to those charged with governance[ML]
Ownership of the Working Papers
• Owned by the Auditor
• Access is controlled by the auditor and not
the client
• Care must be taken when copies of client
generated schedules are incorporated into
the file
Security of working papers
• WPs must be kept secure
• May contain confidential information and that if they are
lost or stolen, the auditor’s duty of confidentiality may be
compromised
• There have been cases of unscrupulous clients altering
auditors working papers to conceal fraud
• Precautions may include the following:
– If files are left unattended at client’s premises, overnight or during
lunch breaks, they shd be securely locked away
– When files are left in a car, the same precautions shd be taken as
with other valuables
– IT based systems shd be subject to password , encryption and
back-up procedures
Retention
• Audit files should be assembled in a timely fashion. This
is ordinarily no longer than 60 days after the date of the
auditor’s report
• Once complete the file should be retained as long as
required by law.
• ISA 230 sets minimum period of 5 years [6 years in
Ghana]
• All of this means that firms need to make arrangements
for :
– Secure storage of recent files
– Archiving old files
– Archiving and back-up of IT based files
Types of Audit Files
• Permanent Files
• Current Files
Permanent Files
• Statutory materials governing the conduct, accounts, and
audit of the enterprise e.g. Companies Code, stock
Exchange Regulations, etc.
• The rules and Regulation of the enterprise
• Copies of documents of continuing importance and
relevant to the auditors, e.g.
• Letter of engagement and minutes of appoint of
the auditor
• Trade license and royalty agreements entered into
by the client
• Debenture deeds
• Leases
• Addresses of the registered office and all other business
locations of the client company
• An organization chart showing the various departments, sections,
authority – responsibility relationships and names of responsible
managers and officers.
• Lists of books and other records and where they are kept,
together with designation, names and signatures of responsible
officers.
• An outline history of the organization including history of Stated
Capital, Capital Surplus, Prospectuses and record of important
ratios.
• List of accounting matters of importance e.g. Accounting policies
with respect to Stocks, work-in-Progress, Depreciation, Research
and Development etc.
• Notes of interviews and correspondence in respect of
Internal Control matters and all past management letters.
• Clients internal audits and Accounting Instructions.
• A list of the Company’s Directors, their shareholdings and
service contracts.
• A list of the Company’s properties and investments with
notes on verifications.
• A list of the Company’s bankers, stockbrokers, solicitors,
valuers, insurance brokers etc.
• It is essential that the permanent file be updated prior to
commencement of a new financial year’s audit.
Current File
• A copy of the accounts being audited
• An index to the file
• A description of the Internal Control System in the form of
ICQ, Flowcharts, or written description together with
supervision documents.
• Cross reference to the Internal Control record and letter of
weakness.
• A schedule for each item in the Statement of financial
position.
• A schedule for each item in the Income statements
showing its makeup.
• A schedule of important statistics including output, sales
Audit Programmes
Audit Programme -Definition
• It is the audit document that indicates the
nature, timing and extent of planned audit
procedures required to implement the audit
plan
Purposes of audit programme

• The audit programme specifies the nature and extent of the

checking , and the members of staff who have carried out the
work.
• The programme serves as:
• a set of instructions to the audit team;
• a means to control and record the proper execution of the
audit work;
• a record of the audit procedures to be adopted, the audit
objectives, timing, sample size and basis of selection for each
area.
• Infact, the audit programme serves as an important part of the
auditor’s working papers and records a significant part of the
audit evidence required to support audit opinion.
Audit Progamme -Flexibility
• It should however be noted that the audit
programme should be designed carefully to allow
for reasonable flexibility.
• Any audit programme that stifles initiative is not
worth its salt.
• As much as possible, what is contained in the
programme should be regarded as the minimum
work to be done and that additional tests, as
appropriate, are permissible.
Standardised Audit Programme
• A standardized audit programme is a pre-
prepared listing of objectives and tests which
can be used in any audit.
• Standardised audit programmes are common
in practice and are often drawn from a
database of procedures in large auditing firms
• Their advantages are that:
• They streamline work.
• They act as checklists to ensure that all important areas are
considered.
• They improve the efficiency of the audit team since they
have thought out and well tested programmes as guide.
• They facilitate delegation of work.
• They help to maintain quality control.
• The disadvantage is that,
• if used slavishly , they may stifle professional judgement.