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Audit Documentation

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27 views

Audit Documentation

Uploaded by

Shwaibu Sella
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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AUDIT DOCUMENTATION –ISA 230

1. MEANING
Audit documentation means the record of audit procedures performed, relevant audit evidence
obtained, and conclusions the auditor reached (terms such as “working papers” or “work papers”
are also sometimes used). (ISA 230)

2. PURPOSE OF PREPARING AUDIT DOCUMENTATION


(a) A sufficient and appropriate record of the basis for the auditor’s report; and
(b) Evidence that the audit was performed in accordance with ISAs and applicable legal and
regulatory requirements.
(c) Assisting or enable the audit team to:
(i) Plan and perform the audit;
(ii) Direct and supervise the audit work;
(iii) Discharge their review responsibilities; and
(iv) Be accountable for its work.
(d) Retaining a record of matters of continuing significance to future audits.
(e) Enabling an experienced auditor to conduct:
(v) Quality control reviews and inspections; and
(vi) External inspections in accordance with applicable legal, regulatory or other
requirements.

3. CONTENTS OF WORKING PAPERS


Working papers should include contents of audit objective, audit testing, evaluation of results and
conclusion.
(a) Audit objectives – that is the purpose of the audit testing recorded on that working paper.
(b) Sampling method –
(i) Definition of population, sampling units, error or deviation.
(ii) Means of determining the sample size.
(iii) The sampling method selected.
(c) Audit tests carried out –
(i) Details of the items selected.
(ii) Details of test and checking on documents, records, etc.
(iii) Errors or deviations noted and the explanations as to their causes.
(d) Interpretation of the results –
(i) Projection of error or deviations.
(ii) Auditor’s assessment of the assurance obtained as to the possible size of actual error
or deviation rate.

1 | Shwaibu Sella (CPA,MSc,BBA,ATEC) +255784397398


(e) Conclusions –
(i) Nature and details of the conclusion drawn from the sample testing results.
(ii) Details of further action taken where required.

Working papers should show:


(a) The name of the client
(b) The balance sheet date
(c) The file reference of the working paper
(d) The name of the person preparing the working paper
(e) The date the working paper was prepared.
(f) The subject of the working paper
(g) The name of the person reviewing the working paper
(h) The date of the review

4. STANDARDIZATION OF WORKING PAPERS


Benefits of using standardized working papers:
(a) Efficient in organizing.
(b) Facilitate communication and planning.
(c) Ease of delegation.
(d) Promote control and review.

Limitations of using standardized working papers:


(a) Working papers are designed and organized to meet the circumstances and the auditor’s
needs for each individual audit.
(b) It is inappropriate to use a mechanical approach without regard to the need to exercise
professional judgment.

5. AUDIT FILES

There are two types of audit files:


(a) Permanent file– it is kept to record all data of a permanent nature which provides the
necessary background information to the auditor from year to year.
(b) Current file– it is kept to record all audit work programs and working papers for the year
under review.

Permanent files contain information of continuing importance to the audit.


(a) Engagement letters
(b) New client questionnaire
(c) The memorandum and articles
(d) Other legal documents such as prospectuses, leases, sales agreement
(e) Details of the history of the client’s business

2 | Shwaibu Sella (CPA,MSc,BBA,ATEC) +255784397398


(f) Board minutes of continuing relevance
(g) Previous years’ signed accounts, analytical review and management letters
(h) Accounting systems notes, previous years’ control questionnaires

Current files contain information of relevance to the current year’s audit.


(a) Financial statements
(b) Accounts checklists
(c) Management accounts details
(d) Reconciliation's of management and financial accounts
(e) A summary of unadjusted errors
(f) Ascertaining and evaluation of internal controls
(g) Report to partner including details of significant events and errors
(h) Review notes
(i) Time budgets and summaries
(j) Letter of representation
(k) Management letter
(l) Notes of board minutes
(m) Communications with third parties such as experts or other auditors

6. CONFIDENTIALITY, SAFE CUSTODY AND OWNERSHIP


Judgment may have to be used in deciding the length of holding working papers, and further
consideration should be given to the matter before their destruction. As ISA 230 indicates, the
retention period for audit engagements ordinarily is no shorter than five years from the date of the
auditor’s report, or, if later, the date of the group auditor’s report.

Working papers are the property of the auditors. They are not a substitute for, or part of, the
entity’s accounting records.

Auditors should not release parts of or whole working papers to third parties without permission of
the entity. Auditors can disclose the working papers to the entity as long as it does not undermine
the independence or validity of the audit process.

3 | Shwaibu Sella (CPA,MSc,BBA,ATEC) +255784397398


CLASS REVISION QUESTIONS
Question One
According to ISA 230 (Clarified), the auditor should prepare, on a timely basis, audit documentation
that provides:
 A sufficient and appropriate record of the basis for the auditor’s report’ and
 Evidence that the audit was planned and performed in accordance with ISAs and applicable
legal and regulatory requirements.
What are the purposes of preparing audit working papers? (6 marks)
(HKIAAT PBE Paper III Auditing and Information Systems December 2010 Q3(e))

Question Two
The auditors have two types of working paper files, the current file (CF) and the permanent file (PF).
Using the initials and the spaces provided, indicate which file each of the following documents
would most likely be filed.

1. A lease agreement.
2. A confirmation of financial institution deposits.
3. Articles of incorporation.
4. An analysis of long-term debt.
5. A pension agreement.
6. An adjusted trial balance.
7. Adjusting journal entries.
8. An analysis of miscellaneous expense.
9. An analysis of owners’ equity accounts.
10. A chart of accounts.

4 | Shwaibu Sella (CPA,MSc,BBA,ATEC) +255784397398


SUGGESTED SOLUTION
Question One
In addition to the mentioned objectives, audit documentation serves a number of purposes,
including:
 Assisting the audit team to plan and perform the audit.
 Assisting members of the audit team responsible for supervision to direct and supervise the
audit work, and to discharge their review responsibilities.
 Enabling the audit team to be accountable for its work.
 Retaining a record of matters of continuing significance to future benefits.
 Enabling the conduct of quality control reviews and inspections.
 Enabling the conduct of external inspections in accordance with applicable legal, regulatory or
other requirements.

Question Two

1. A lease agreement. PF
2. A confirmation of financial institution deposits. CF
3. Articles of incorporation. PF
4. An analysis of long-term debt. PF
5. A pension agreement. PF
6. An adjusted trial balance. CF
7. Adjusting journal entries. CF
8. An analysis of miscellaneous expense. CF
9. An analysis of owners’ equity accounts. PF
10. A chart of accounts. PF

5 | Shwaibu Sella (CPA,MSc,BBA,ATEC) +255784397398

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