AT – AT – Audit Documentation Red Sirug Page 1 AUDITING THEORY Red Sirug AUDIT DOCUMENTATION (AUDIT WORKING PAPERS) Audit Documentation represents the record o f audit procedures performed, relevant audit evidence obtained, and conclusions the auditor reached Audit documentation is sometimes called “working papers” or “work papers”. t engagement is assembled in an audit file. rm, containing the records that comprise the audit documentation for a specific engagement Purposes of Audit Documentation: Audit documentation provides: a. A sufficient and appropriate record of the basis for the auditor’s report (or audit opinion) b. Evidence that the audit was planned and performed in acc ordance with PSAs (and applicable legal and regulatory requirements) Primary purposes:
udit report
engagement and in preparation of the audit report
the audit Additional purposes:
audit work, and to discharge their review responsibilities
nt team to be accountable for its work – this would assist the auditor in planning future audits th quality control standards
requirements
ense in case of litigation Audit documentation: (NOT)
support for the financial statements) al statements
Requirements on Audit Documentation: 1. Timely preparation of audit documentation – Audit documentation prepared by the auditor on a timely basis will help to: a. Enhance the quality of the audit; and b. Facilitates the effective review and evaluation of the audit evidence obtained and conclusions reached before the auditor's report is finalized 2. Documentation of the audit procedures performed and audit ev idence obtained – This includes: a. Documentation of compliance with PSAs: (1) Compliance with PSA 230 (Redrafted) – Audit Documentation (2) Compliance with other PSAs (other PS As contain specific documentation requirements that are intended to clarify the application of PSA 230) b. Documentation of the nature, timing and exte nt of audit procedures: The auditor shall record: AT – Audit Documentation Red Sirug Page 2 (1) The identifying characteristics of the specific items or m atters tested
(2) Who performed the audit work and the date such work was completed, and (3) Who reviewed the audit work performed and the date and extent of such review c. Documentation of significant matters: Examples of significant matters include:
audit procedures indicating: 1) That the financial statements could be materially misstated, or 2) A need to revise the auditor's previous assessment of the risks of material misstatement and the auditor's responses to those risks se the auditor significant difficulty in applying necessary audit procedures. odification to the audit opinion or the inclusion of an Emphasis of Matter paragraph in the auditor's report d. Documentation of significant professional j udgments: This documentation serves to: (1) Explain the auditor's conclusions and (2) Reinforce the quality of the j udgment The auditor may consider it helpful to prepare and retain as part of the audit documentation a summary (sometimes known as a completion memorandum) that describes the significant matters identified during the audit and how they were addressed, or that includes cross-references to other relevant supporting audit documentation that provides such information. e. Documentation of discussions of significant matters with management, those charged with governance, and others (other personnel within the entity, and external parties) This documentation shall include: (1) The nature of the significant matters discussed and (2) When and with whom the discussions took place may include other appropriate records such as minutes of meetings prepared by the entity's personnel and agreed by the auditor. f. Documentation of how inconsistencies have been addressed
If the auditor identified information that is inconsistent with the auditor's final conclusion regarding a significant matter, the auditor shall document how the auditor addressed the inconsistency. The auditor need not retain documentation that is incorrect o r superseded. g. Documentation of how departure from a relevant PSA requirement has been addressed If, in exceptional circumstances, the auditor judges it necessary to depart from a relevant requirement in a PSA, the auditor shall document: 1) How the alternative audit procedures performed achieve the aim of that requirement, and 2) The reasons for the departure Allowed departure from a relevant PSA requirement: a. The PSA is not relevant (for example, in a continuing audit engagement, nothing in Initial Audit Engagements – Opening Balances under PSA 510 (Redrafted) is re levant; or b. The circumstances envisioned do not apply because the r equirement is conditional and the condition does not exist (for example, the requirement to modify the auditor's opinion where there is an inability to obtain sufficient appropriate audit evidence, and there is no such inability). h. Documentation of how matters arising after the date of the auditor's report have been addressed In exceptional circumstances where the auditor performs new or additional audit procedures or draws new conclusions after the date of t he auditor's report, the auditor shall document: a. The circumstances encountered b. The new or additional audit procedures performed, audit evidence obtained, and conclusions reached, and their effect on the auditor's report, and c. When and by whom the resulting c hanges to audit documentation were made and reviewed Matters arising after the date of the auditor's report: Examples of exceptional circumstances include facts which become k nown to the auditor after the date of the auditor's report but which e xisted at that date and which, if known at that date, might have caused the financial statements to be amended or the auditor to modify the opinion in the auditor's report. 3. Completion of assembly of final audit file on a timely basis, o rdinarily not more than 60 days AT – Audit Documentation Red Sirug Page 3 after the date of the auditor's report Changes to the audit documentation:
in nature, such as: a. Deleting or discarding superseded information. b. Sorting, collating and cross-referencing working papers. c. Signing off on completion checklist relating to the file assembly process. d. Documenting audit evidence that the auditor has obtained, discussed and agree d with the relevant members of the engagement team before the date of the auditor’s report. completion date of the assembly of the final audit file: Changes are not allowed.
administrative process that does not involve the performance of new procedures or the drawing of new conclusions.
audit documentation of any nature before the e nd of its retention period. r finds it necessary to modify existing audit documentation or add new audit documentation after the assembly of the final audit file has been completed, the auditor shall, regardless of the nature of the modifications or additions, document: a. The specific reasons for making them, and b. When and by whom they were made and reviewed An example of a circumstance in which the auditor may find it necessary to modify existing audit documentation or add new audit documentation after file assembly has been comple ted is the need to clarify existing audit documentation arising from comments received during monitoring inspections performed by internal or external parties. 4. Requirements as to form, content and extent of audit documentation: a. Auditor’s judgment: The form, content and e xtent of audit documentation are based on the auditor’s decision/judgment since it is neither necessary nor practical for the auditor to document every mat ter he/she has considered or professional judgment he has made in an audit. The audit documentation shall be designed to meet the circumstances and the auditor's needs for each individual audit. b. Use of “Experienced auditor” concept: The auditor shall prepare audit documentation that is sufficient to enable an experienced auditor, having no previous connection with the audit, to understand:
a. The nature, timing, and extent of the audit procedures performed to comply with the PSAs (and applicable legal and regulatory requirements) b. The results of the audit procedures performed, and the audit evidence obtained, and c. Significant matters arising during the audit, the conclusions reached thereon, and significant professional judgments made in reaching those conclusions Experienced auditor – means an individual (whether internal or external to the firm) who has practical audit experience, and a reasonable understanding of:
and applicable legal and regulatory requirements
ting issues relevant to the entity's industry Other important qualities of good audit documentation: omplete: Audit documentation should be concise but complete in itself that it does not require oral explanation. tion should be free from errors, clerical or computational. opriately organized to provide a clear link to the significant matters and to facilitate review of audit work. Elements of audit documentation: Working papers should be properly organized to facilitate their review. Working papers should have the following elements: 1. Heading – used to properly identify each working paper; the heading would include: a. Name of the client b. Type/title of working paper c. Description of its content, and AT – Audit Documentation Red Sirug Page 4 d. Date or period covered by the examination 2. Dates and initial of staff auditors who performed the audit procedures and reviewers
3. Indexing – audit working papers are indexed by means of reference numbers to show the relationship between findings, conclusions, and the related facts Purposes of indexing:
-referencing to other working papers 4. Cross-indexing / cross referencing – The primary purpose of cross-indexing audit working papers is to: a. Permit cross-referencing and b. Simplify supervisory review by providing an audit trail of related items through the working papers For example, reported findings should be adequately cross-re ferenced to supporting documentation. 5. Tickmarks – symbols that indicate the audit procedures performed
c. Form of audit documentation: Audit documentation may be recorded o n paper or on electronic or other media. l form: Oral explanations by the auditor, on their own, do not represent adequate support for the work the auditor performed or conclusions the auditor r eached, but may be used to explain or clarify information contained in the audit documentation. d. Factors to consider in deciding the form, content and extent of audit documentation: (1) The size and complexity of the e ntity. (2) The nature of the audit procedures to be performed. (3) The identified (and assessed) risks of material misstatement – this would include audit risk (or its components), materiality levels, and existence of material fraud and e rrors (4) The significance of the audit evidence obtained. (5) The nature and extent of exceptions identified. (6) The 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. (7) The audit methodology and tools used. Classification / Composition of Audit D ocumentation: In the case of recurring audits, working paper files are classified:
1. Permanent files – contain information of historical or continuing or long-term significance/interest to the auditor in performing current audit. Permanent files are simply updated with new information of continuing importance to the auditor. Permanent files include: a. Information such as:
of accounts and accounting procedures manuals chedules – continuing analyses of long-term accounts (such as PPE, intangible assets, long-term liabilities and stockholders' equity accounts) whose balances are carried forward in the permanent file anding of internal control and assessment of control risk (include flowcharts, narrative descriptions, questionnaires, etc.) from previous year audit
b. Copies, extracts or excerpts of entity’s important legal documents and agreements such as: -partnership) and By-laws that affect future periods , profit-sharing plans and employee bonus
2. Current audit file – contains evidence gathered, descriptions of auditing procedures performed and conclusions reached relevant to the audit of a particular year or single period. Current audit file is designed to support management assertions in the financial statements. Current audit file includes all working papers accumulated during the current year’s audit:
AT – Audit Documentation Red Sirug Page 5
trategy and audit plan
– a detailed list of audit procedures (tests of co ntrols and/or substantive tests) that the auditor will perform to gather sufficient appropriate evidence – an estimate of time that will be spent in executing audit procedures listed in the audit program – shows a list of unadjusted ending balances of accounts or line items that are to be shown on the financial statements A working trial balance resembles the financial statements w ithout footnotes, but contains columns for unadjusted year-end balances (per books), adjusting and reclassifying entries, and adjusted year-end balances (per audit). – proposed adjustments are intended to correct mate rial misstatement discovered by the auditor in the co nduct of audit while reclassifications are made to properly present information in the financial statements (even when the general ledger balances are correct) Reclassification entries are entries made for financial statement pr esentation purposes. They are recorded in the financial statements but not in the general ledger. – shows the major components of an amount reported as a line item on the face of the financial statements The lead schedule supports each line item on the working trial balance by combining/grouping/summarizing similar or related items contained on the supporting schedules. In other words, it eliminates voluminous details from the auditor’s working trial balance. – schedules that support specific amounts on the financial statements by providing details of amounts aggregated in the lead schedule An example of a supporting schedule is a bank reconciliation schedule to support cash in bank. Supporting schedules usually represent the largest portion of t he auditor's working papers. – shows the activity (transactions – both debits and credits) in a particular balance sheet account during the period under audit, tying together the beginning and ending balances – include documentation on discussions of certain items such as internal control, inventory observation, errors identified, and problems encountered (including e-mail) concerning significant matters – includes correspondence with other parties such as lawyers, customers, banks, and management – used to record items of work to be done and questions concerning the audit investigation
mentation of corroborating information:
n
– include matters such as: sks
the risks of material misstatement
3. Other types of files: a. Tax files – contain files of information on client’s income taxes and other business taxes that may be used as bases for:
-related services
b. Correspondence file – contains all correspondence/letters to or from (or in behalf of) a client c. Completion memorandum – a summary that describes the significant matters identified during the audit and how they are addressed Exclusions from Audit Documentation: The auditor need not include in audit documentation the following: a. Superseded drafts of working papers and financial statements b. Notes that reflect incomplete or preliminary thinking c. Previous copies of documents corrected for typographical or other errors, and d. Duplicates of documents Supervisory Review of Audit Documentation:
ew of the audit documentation. AT – Audit Documentation Red Sirug Page 6 to determine if working papers adequately support audit findings, conclusions, and opinion/reports. Auditor/CPA firm’s Responsibility on Audit Documentation: CPA firms shall adopt policies and procedures regarding the following: 1. Timely completion of assembly of final audit file – The appropriate time limit within which to complete the assembly of the final audit file is or dinarily not more than 60 days after the date of the auditor's report. 2. Confidentiality, safe custody, integrity, accessibility and retrievability of audit documentation: ll times contained in the audit documentation, unless specific client authority has been given to disclose information, or there is a legal or professional duty to do so.
lost or damage of audit documentation (whether audit documentation is in paper, electronic or o ther media) For example, appropriate controls should protect the integrity of the information at all stages of t he engagement, especially when the information is shared within the e ngagement team or transmitted to other parties via the Internet. tain the confidentiality, safe custody, integrity, accessibility and retrievability: Examples of these controls include:
users. nes for electronic audit documentation at appropriate stages during the engagement. o hardcopy audit documentation 3. Retention of audit documentation: The CPA firm shall establish policies and procedures for the retention of audit documentation for a period sufficient to meet the needs of the firm’s practice and to satisfy any pertinent legal requirements of reco rd retention.
s from the date of the auditor’s report, or, if later, the date of the group auditor’s report. (based on proposed PSQC 1) The SEC requires a retention period of seven (7) years under its rules for accreditation of external auditors. t delete or discard audit documentation before the end of its retention period. Ownership of Audit Documentation: provision (Sec. 29 of RA 9298 – Ownership of Working Papers): All working papers, schedules and memoranda made by a CPA and his staff in the course of an examination, including those prepared and submitted by the client, incident to or in the course of an examination, by such CPA, except reports submitted by a CPA to a client shall be treated confidential and privileged and remain the pr operty of such CPA in the absence of a written agreement between the CPA and the client, to the contrary, unless such documents are required to be produced through subpoena issued by any court, tribunal, or government regulatory or administrative body. SA provision on ownership of audit documentation: Unless otherwise specified by law or regulation, engagement documentation is the property of t he firm (or auditor). The firm/auditor may, at its discretion, make portions of, or extr acts from, engagement documentation available to clients, provided such disclosure does not undermine the validity of the work performed, or, in case of assurance engagements, the independence of the firm or its personnel. property of the auditor/audit firm and the client has no right to the working papers prepared by the auditor. However, th ey cannot be shown to third parties under the rule on confidentiality, unless specific client authority has been given to disclose information, or there is a legal or professional duty to do so. eful reference source for his client, auditor’s working papers should not be regarded as part or substitute for the client's accounting records.
