Chapter 6: Section 1

Question 1

In order to reach a conclusion, what will the auditor have to do and what may occur here?

Answer 1

Make sense of all the information obtained during the audit - here some of the info will be more material than others

Question 2

What ISA talks about audit evidence storing and recording?

Answer 2

ISA 230 Audit Documentation

Question 3

What does the ISA 230 Audit Documentation lay out?

Answer 3

Protocols for storing and recording audit evidence obtained

Question 4

What does the ISA 230 classify the role of documentation as? (3)

Answer 4

• Evidence of auditor’s basis for a conclusion about the achievement of the overall objective of the auditor (ultimately supporting the audit opinion)
• Evidence that the audit was planned and performed in accordance with ISAs and applicable legal regulatory requirements
• Physical or electronic media (audit files) for storing working papers and other records specific to the audit engagement

(paras 2 and 6)

Question 5

What is audit documentation often referred to as?

Answer 5

Working papers

Question 6

Define working papers.

Answer 6

Documentation prepared by and for, or obtained and retained by, the auditor in connection with the performance of the audit (ISA 230: para 6)

Question 7

What are the 5 details auditors must reference working papers with?

Answer 7

1. Name (or initials) of the auditor who prepared the WP
2. Date the WP was prepared
3. Area of the audit being worked on e.g., inventory
4. Identifying characteristics of the item/matters being tested
5. Period end of the financial statements being audited

Question 8

Who are working papers reviewed by?

Answer 8

A member of staff more senior than the one that prepared them

Question 9

When a working paper is review, what details are added to it?

Answer 9

Review also initials the WP and dates when it was reviewed

Question 10

ISA 230 sets out what auditors must document in a general rule - what is this?

Answer 10

‘The auditor shall prepare audit documentation on a timely basis.’

Question 11

How sufficient shall an auditor prepare audit documentation?

Answer 11

Sufficient enough to enable an experienced auditor, having no previous connection with the audit, to understand various details.

Question 12

What are the 3 details which auditors have to ensure someone who has had no previous connection to the audit should be able to understand?

Answer 12

1. Nature, timing and extent of audit procedures performed to comply with the ISAs and applicable legal and regulatory requirements
2. Results of audit procedures performed, and audit evidence obtained
3. Significant matters arising during the audit, conclusions reached thereon and significant professional judgements made in reaching those conclusions

Question 13

The 3 key details which someone with no connection to the audit should understand include info on what 6 things?

Answer 13

1. Planning the audit
2. Nature, timing and extent of audit procedures performed
3. Results of audit procedures and audit evidence obtained
4. Conclusions drawn from audit evidence obtained from procedures
5. Any contentious issues and how they were resolved
6. Discussion on significant matters had with client staff/officers

Question 14

What must auditors document their reasoning on?

Answer 14

Significant matters where they have exercised judgement
Conclusions they have drawn
How they addressed any inconsistencies between evidence originally collected
Auditor’s final conclusions on any matters

Question 15

Why is auditor’s final conclusions on any matters recorded?

Answer 15

So if auditor’s view on internal controls changed through the course of the audit, there should be documentation to explain this change of viewpoint

Question 16

What does the ISA 230 say about how much auditors should write?`

Answer 16

Suggests auditors should write down enough that an experienced auditor who has no experience of the particular client could follow and understand what had been done

Question 17

What will the form, content and extent of audit documentation depend on and what does this mean in other words?

Answer 17

Factors such as:
-Nature of audit procedures
-Risks of material misstatement
-Extent of judgement required
-Significance of evidence
-Nature and extent of exceptions identified

In other words, auditor will need to use their judgement when making this decision

Question 18

What is the standardisation of working papers?

Answer 18

May be cases where working papers are standardised so auditor merely has to complete the client details

Question 19

Give some examples of standardised working papers

Answer 19

Checklists
Specimen letters

Question 20

Why must the auditor always take care when using standardised working papers?

Answer 20

Never appropriate to take a mechanical approach to auditing as audit judgement must always be exercised

Question 21

Working papers usually include 10 things. Name first 5 of them.

Answer 21

1. Info about entity and its environment
2. Evidence of audit planning process
3. Evidence of auditor’s consideration of the internal audit function (if relevant)
4. Analyses of transactions and balances in the financial statements
5. Analyses of significant ratios and trends

Question 22

Working papers usually include 10 things. Name the last 5 of them.

Answer 22

6. Identified and assessed risks of material misstatements
7. Record of the nature, time and extent of resulting procedures
8. Copies of letters concerning matters communicated to, or discussed with, management such as the terms of the engagement
9. Conclusions reached by the auditor on significant aspects of the audit
10. Copies of the financial statements and auditor’s report

Question 23

Where are working papers contained and why?

Answer 23

For one audit, having all the info it does this can amount to a lot of working papers so therefore are contained in audit files.

Question 24

What do audit regulations usually require in relation to WPs?

Answer 24

Must be kept for at least six years from the end of the accounting period to which they relate

Question 25

Compared to 20th century, where it was all about physical documents in paper form, what is the 21st century auditor more likely to do?

Answer 25

Make use of technology e.g. data analytics in the context of automated tools and techniques

Question 26

What are automated drones now even being used for?

Answer 26

Used when collecting physical evidence from more remote and inaccessible locations

Question 27

Why are emails now important?

Answer 27

Are far more likely to be the communication method favoured by firsm of auditors and their clients. Can also be used to obtain other forms of audit evidence, e.g., confirmation from customers during circularisation or information about bank accounts

Question 28

What is more likely to happen with the WPs due to tech?

Answer 28

Filed papers may never fully disappear but likely will be stored electronically

Question 29

What does storing WPs electronically allow for?

Answer 29

Greater opportunities for remote access via cloud-based applications that can make geographically-dispersed teams work more efficiently and effectively

Question 30

What is likely to happen to the process of communication due to tech and why?

Answer 30

Likely to be more immediate and cost-effective now because of reliable remote conferencing software