Audit Documentation ISA 230 and Quality Working Papers. Amer Ali, FCCA June Grant Thornton LLC. All rights reserved.

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1 Audit Documentation ISA 230 and Quality Working Papers Amer Ali, FCCA June 2012

2 ISA Audit documentation is the record of audit procedures performed, relevant audit evidence obtained, and conclusions the auditor reached. terms such as working papers or work papers are sometimes used and may vary within different firms.

3 Why is documentation important to support conclusions? required by ISA 230 required by firms policies and procedures to comply with ISA required by applicable legal and regulatory requirements

4 Why is documentation important to support conclusions? internal reviews (manager, partner, practice reviews) professional bodies review regulators reviews like PCOAB in US

5 Audit documentation meeting ISA requirements provides evidence of the auditor s basis for a conclusion about the achievement of the overall objectives of the auditor; and evidence that the audit was planned and performed in accordance with ISAs and applicable legal and regulatory requirements.

6 Audit documentation additional purposes assisting the engagement team to plan and perform the audit assisting members of the engagement team responsible for supervision to direct and supervise the audit work, and to discharge their review responsibilities enabling the engagement team to be accountable for its work retaining a record of matters of continuing significance to future audits

7 Objective of Audit documentation 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.

8 Content of Audit documentation The auditor should prepare the audit documentation in order to enable an experienced auditor, having no previous connection with the audit, to understand: The nature, timing, and extent of the audit procedures performed to comply with the ISAs and applicable legal and regulatory requirements. The results of the audit procedures and audit evidence obtained. Significant matters arising during the audit and conclusions reached thereon. Working papers should be sufficiently completed and detailed.

9 Significant matters Significant matters are matters that are judged through objective analysis of the facts and circumstances to be significant to our audit and include, among others: Significant risks (pervasive or specific risks). Results of audit procedures indicating: Material misstatement. Revision of our assessment of risk. Significant difficulty in performing necessary audit procedures. Findings that could modify our audit report.

10 Documentation Key messages Sufficient evidence to allow an experienced auditor with no previous connection to the audit engagement to understand: What was done. The evidence obtained. Significant matters arising during the audit. The conclusion reached. Who performed the work and when. Work NOT Documented is Work NOT Done!

11 What to document? The audit procedures applied Objective, procedures, results, conclusion. Details of the tests performed Describe in detail the work performed. Identify the person who performed the work and those who reviewed it, including the date when these were performed. Identify significant matters arising during the audit. State conclusions reached and the basis for them. Show the source of the amounts and other information. Properly index and cross reference. Audit procedures performed according to instructions in the audit program Ensure all procedures in the audit program are addressed in our audit working papers.

12 What to document? Only the work we have actually performed! Only what is relevant to the audit: Contains analyses, opinion, conclusions. Supports the overall audit opinion.

13 Form, content and extent of audit documentation depends on factors such as: size and complexity of the entity. nature of the audit procedures to be performed. identified risks of material misstatement. significance of the audit evidence obtained. nature and extent of exceptions identified. 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. audit methodology and tools used.

14 Nature of audit documentation Can be electronic, manual, or other media. Examples include: Audit programs. s with the client. Analyses. Evidence of test of details on samples of items. Letters of confirmation and representation. Abstracts or copies of the entity s records (e.g., significant and specific contracts and agreements). Substantive analytical procedures, including development of expectations and investigation of differences.

15 What is not audit documentation Entity records (e.g., invoices looked at in testing). Superseded working papers/drafts. Notes that reflect incomplete or preliminary thinking. Duplicate documents. Review points (raised as part of our internal review processes).

16 Audit documentation retention policy ISQC 1 requires firms to establish policies and procedures for the timely completion of the assembly of audit files. An appropriate time limit within which to complete the assembly of the final audit file is ordinarily not more than 60 days after the date of the auditor s report. retention period for audit engagements vary based on legal requirements (not shorter than 5 years) statutory and group reporting issues

17 Electronic work papers control Regulations require that we ensure electronic working papers are adequately maintained and controlled. In practice this means: Regular back-ups. Computers and manual files are locked if unattended. Extra care taken with the control of confidential information (e.g., payroll, bonus schedules). Use of passwords to protect confidential information.

18 Documentation for stages of an audit Perform pre-engagement activities Planning stage Perform the audit plan Conclude and report Asses and manage risk continuous process

19 Stages of an audit - perform pre-engagement activities Client acceptance procedures (evaluate compliance with ethical requirements, including independence)/assess engagement risk Establish terms of engagement

20 Stages of an audit - Planning stage Strategic audit planning Understand the entity and its environment Understand internal control/accounting process Perform preliminary analytical review Develop planning materiality Asses risk at account balance Plan to test operating effectiveness of controls vs. substantive procedures

21 Stages of an audit - Perform the audit plan Perform tests of operating effectiveness of controls Perform substantive procedures (test of details and/or substantive analytical procedures) Perform financial statements review

22 Stages of an audit - conclude and report Perform subsequent event review Obtain management representation letter Audit summary memorandum Report

23 Specific Audit Documentation Requirements in Other ISAs ISA 210, Agreeing the Terms of Audit Engagements paragraphs ISA 220, Quality Control for an Audit of Financial Statements paragraphs ISA 240, The Auditor s Responsibilities Relating to Fraud in an Audit of Financial Statements paragraphs ISA 250, Consideration of Laws and Regulations in an Audit of Financial Statements paragraph 29

24 Specific Audit Documentation Requirements in Other ISAs (continued) ISA 260, Communication with Those Charged with Governance paragraph 23 ISA 300, Planning an Audit of Financial Statements paragraph 12 ISA 315, Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment paragraph 32 ISA 320, Materiality in Planning and Performing an Audit paragraph 14 ISA 330, The Auditor s Responses to Assessed Risks paragraphs 28-30

25 Specific Audit Documentation Requirements in Other ISAs (continued) ISA 450, Evaluation of Misstatements Identified During the Audit paragraph 15 ISA 540, Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures paragraph 23 ISA 550, Related Parties paragraph 28 ISA 600, Special Considerations Audits of Group Financial Statements (Including the Work of Component Auditors) paragraph 50 ISA 610, Using the Work of Internal Auditors paragraph 13