What is the main purpose for documentation in an Audit?
Audit documentation serves mainly to provide:
- the principal support for the auditor’s report
- assistance in the planning, conduct, and supervision of the audit
- accountability
- useful information.
What are the standards for Audit Documentation?
Audit documentation should:
- Clearly indicate the work performed and the evidence obtained.
- Indicate which parties performed and reviewed the work.
- Demonstrate compliance with the standards of fieldwork.
- It should indicate an appropriate level of planning and supervision was done, a sufficient understanding of the entity and its environment, understanding of internal control, and that a sufficient level of appropriate evidence was obtained.
- Document findings that could result in a modification of the auditor’s report.
- If the results of audit procedures indicate a need to revise the previous assessment of risk, the new assessment and original assessment should be documented. The auditor should also address responses to the new risk.
- On their own, oral explanations do not represent adequate support for the work the auditor performed or conclusions the auditor reached but may be used to explain or clarify information contained in the audit documentation.
- If alternative audit procedures were performed due to a lack of responsiveness by the client, the lack of responsiveness should be documented in the working papers.
What type of documentation does GAAS require for an Audit?
- Show that the accounting records agree or reconcile with the financial statements.
- Understanding of internal control: Flowcharts, internal control questionnaires.
- An engagement letter.
- A list of procedures and findings is required for an agreed-upon procedures engagement, not for an audit.
What would affect the nature, extent, and timing (NET) of audit documentation?
- The risk of material misstatement.
- The extent to which judgment was required.
- The nature of the specific auditing procedure.
- The significance of the evidence obtained.
- The nature and extent of any problems identified.
- The need to document conclusions that may not be obvious.
How much detail should Audit Documentation be prepared in?
- Enough detail so that an experienced auditor who has no previous connection with the audit can understand the procedures performed and the evidence obtained.
- It should show that the accounting records agree or reconcile with the financial statements.
What is sufficient appropriate documentation?
- Sufficient and appropriate documentation should include evidence that the audit working papers have been reviewed.
- Accounting estimates are considered a significant finding or issue that should be documented by the auditor.
- Additional evidence supplements the original evidence. The original evidence should not be deleted from the working papers.
What types of items belong inside of audit documentation?
- Reconciliations and tickmarks are included within audit documentation
- Accruals and deferrals are included within audit documentation
- Expense and revenue summaries are included within audit documentation
What is considered significant audit findings?
- Possible material misstatements.
- Items resulting in report modifications
- Matters related to the application of accounting principles to complex and unusual transactions.
What are two important dates to recognize?
Documentation Completion Date
The date after which existing documentation must not be deleted, and additions to the documentation file must be documented.
Report Release Date
- The date on which the report is authorized for use and delivered to the client.
- It is used to define the beginning of the retention period.
When is the documentation completion date?
PCAOB standards
Must be 45 days following the report release date.
Auditing Standards (SAS’s)
Must be 60 days following the report release date.
What is the retention period to keep audit documentation?
PCAOB
7 years
GAAS
5 years
What goes in the clients Permanent file vs. Current File?
Permanent File:
The permanent file includes items with continuing audit significance, such as debt agreements, Bond Indenture Agreements, Lease Agreements, Internal Control Flowcharts
Current File:
Attorney’s letters, Lead Schedules, bank statements, working Trial Balance since they are applicable to the current year’s audit only.
What are the 2 additional columns the auditor adds to the Working Trial Balance?
- Adjustments
- Reclassifications.
How to read tickmarks?
- Footed = Confirming the mathematical accuracy of a column
- Cross Footed = Confirming the mathematical accuracy of a Row
- Traced and Agreed to Supporting Invoice = Cost of Asset PPE
- Agreed Amount to the Subsidiary Ledger = Final number that agrees with the Column and Rows
- Recalculated = Accumulated Depreciation
