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Chapter 10 - Audit Documentation and Working Papers (Appendix)

The document discusses audit documentation and working papers. It defines audit documentation as the record of audit procedures performed, evidence obtained, and conclusions. Working papers are used to plan, perform, and supervise the audit, and provide support for the auditor's opinion. They must contain sufficient information for another auditor to understand the audit that was performed. Documentation standards require retaining working papers for seven years. The permanent file contains continuing audit information, while the current file holds documentation for the year under audit, including planning, risk assessments, and evidence of procedures.

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108 views17 pages

Chapter 10 - Audit Documentation and Working Papers (Appendix)

The document discusses audit documentation and working papers. It defines audit documentation as the record of audit procedures performed, evidence obtained, and conclusions. Working papers are used to plan, perform, and supervise the audit, and provide support for the auditor's opinion. They must contain sufficient information for another auditor to understand the audit that was performed. Documentation standards require retaining working papers for seven years. The permanent file contains continuing audit information, while the current file holds documentation for the year under audit, including planning, risk assessments, and evidence of procedures.

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Michael Anthony
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© © All Rights Reserved
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Chapter 10– Audit

Documentation and
Working Papers
(Appendix) Rick Hayes, Hans Gortemaker and
Philip Wallage
Audit documentation and working papers

Definition:
□ Audit documentation is the record of audit procedures performed,
relevant audit evidence obtained and conclusions the auditor
reached (terms such as ‘working papers’ or ‘workpapers’ are
sometimes used.)

□ Audit documentation is the principal record of the basis for the


auditor’s conclusions and provides the principal support for the
representations in the auditor’s report.

□ Audit documentation includes records on the planning and


performance of the work, the procedures performed, evidence
obtained and conclusions reached by the auditor.
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Working papers

□ Are a direct aid in the planning, performance and supervision of


the audit.

□ Record the audit evidence resulting from the audit work performed
to provide support for the auditor’s opinion including the
representation.

□ Assist in review of the audit work.

□ Provide proof of the adequacy of the audit.

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Significant matters

ISA 230 states: The auditor should document discussions of


significant matters with management, those charged with governance,
and others, including the nature of significant matters discussed and
when and with whom
the discussions took place.

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Form and content of the working papers

□ PCAOB: ‘Audit documentation must contain sufficient


information to enable an experienced auditor, having no
previous connection with the engagement:
■ (1) to understand the nature, timing, extent and results of the
procedures performed, evidence obtained, and conclusions
reached;
■ (2) to determine who performed the work and the date such
work was completed as well as the person who reviewed the
work and the date of such review.’

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Form and content of the working papers (Cont’d)

□ The working papers should convey the


auditor’s reasoning on all matters which require the exercise of
judgement and the auditor’s conclusions.

□ The extent of what is included in working papers is a matter of


professional judgement.
• All auditing firms around the world have their own work paper
formats, and these are modified from time to time.

□ Working papers are designed and organised to meet the


circumstances and the auditor’s needs for each individual audit.

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Document retention

ISA States…: ‘The auditor should adopt appropriate procedures for


maintaining the confidentiality and safe custody of the working papers
and for retaining them for a period sufficient to meet the needs of the
practice and in accordance with legal and professional requirements of
record retention.’

Working papers are the property of the auditor.

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PCAOB and SOX retention

□ PCAOB’s Documentation Standard # 3 states:


‘The auditor must retain audit documentation for seven years
from the date the auditor grants permission to use the auditor’s
report in connection with the issuance of the company’s financial
statements (report release date), unless a longer period of time is
required by law.’

□ SEC regulation specifies detailed requirements regarding the


types of document (e.g. working papers, memos, correspondence,
etc. that contain conclusions, opinions, analyses, etc.) that should
be retained.

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Permanent file

□ The permanent file is audit work papers containing all the data
which are of continuing interest from year to year.

□ The permanent file is intended to contain data of historical or


continuing nature pertinent to the current audit. This file provides
a convenient source of information about the audit that is of
continuing interest.

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The permanent file usually includes the following:

□ Information concerning the legal and organisational structure of


the entity such as corporate charter, corporate bylaws, job
manuals, corporate organisational chart, etc.

□ Prior year analysis of fixed assets, long term debt, terms of stock
issues, etc.

□ Information concerning the industry, economic environment and


legislative environment.

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Current work paper files

□ The current work paper file contains all documentation applicable


to the year under audit.

□ The current file ordinarily includes client summary information


such as description of the client, client industry, client internal
controls and the auditor’s materials.

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The current file work papers will usually contain:

□ Evidence of the planning process including the audit planning


memorandum and the audit programme.

□ Evidence of understanding of the accounting and internal control


systems.

□ Evidence of inherent and control risk assessments.

□ Analysis of significant ratios and trends.

□ A record of the nature, timing and extent of audit procedures


performed and their results.

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Lead schedules

□ Each line item in the trial balance is supported by


a lead schedule, containing the detailed accounts from the general
ledger making up the line item.

□ Each detailed account on the lead schedule is, in turn, supported


by audit work performed and the conclusions drawn.

□ The major types of supporting schedules are account analysis, list


schedules, reconciliation
of amounts, tests of reasonableness, procedures description,
informational and outside documentation.

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Preparation of audit working paper

□ Preparation of Audit Documentation—Audit documentation should be in


sufficient detail to provide a clear understanding of the work performed,
evidence obtained, and conclusions reached.

□ Documentation should have these characteristics:


• Identified with the client’s name, period covered, description of the
contents, initials of the preparer, date of preparation, and an index
code.
• Files should be indexed and cross-referenced to aid in organization.

• Documentation should clearly indicate the audit work performed


through memos, initialing the procedures in the audit program, or
tick marks on the schedules.
• Include sufficient information to fulfill the audit objectives.
14 • Conclusions reached about the segment of the audit should be clearly
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🍔 Any questions?

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