Newsletter October 2019

Working paper content

Even though the engagement partner’s main concern is that the correct opinion is expressed, every engagement file still needs to address certain basic documentation matters. Quality partners, engagement quality control reviewers and other reviewers sometimes miss finer details that can make all the difference with regard to facilitating re-performance and clearly supporting conclusions drawn. This article explains how to get it right in an efficient and practical manner.

Key documentation requirements

The objective of audit documentation is to provide 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 International Standards on Auditing (ISAs), and applicable legal and regulatory requirements.

The auditor must prepare audit documentation that will enable an experienced auditor, having no previous connection with the audit, to understand the work performed, results, evidence obtained, judgments and conclusions. The auditor must document the identifying characteristics of the specific items tested, details of discussions of significant matters and how inconsistencies were addressed. Any departures from ISAs must also be clearly addressed in the audit documentation.

Audit evidence must be obtained on time. Matters arising after the audit report date and modification of audit documentation after final file assembly must be clearly described, explained and reviewed to ensure that the integrity of the audit documentation remains intact.

Common findings

The IRBA Public Inspections Report 2018 identified the following common deficiencies in fieldwork, audit evidence and documentation:
  • Audit work not documented in sufficient detail on file to be re-performable by another experienced auditor and to enable an experienced auditor to come to the same conclusion
  • Contradictory working papers, and contradiction between working papers and opinion
  • Sole reliance on working papers and representations prepared by the client
  • Working papers not compliant with the requirements of the standards
  • Absent sampling methodology
  • Inappropriate population used for a sample selection
  • Insufficient extent of testing, in relation to assessed risk
  • Insufficient testing at assertion level
  • All relevant assertions for material classes of transactions, account balances and disclosures not addressed by audit work
  • Inappropriate source documentation and direction of testing
  • Lead schedule, according to working papers, not in agreement with financial statements; or disclosures, according to notes, not in agreement with primary financial statements, with no documented explanation of the conclusion
  • Unidentified or unaddressed material misstatements and departures from standards
  • Lack of demonstrated professional scepticism in assessing audit evidence
  • Integrity of audit file, and conduct of engagement team and firm in doubt: modification of working paper file after 60-day file assembly period and shortly before inspection date.
Root causes for these findings are ascribed to deficient training, supervision and review, and consultation with superiors during the audit, as well as time pressure. Clearly, auditors need to pay more attention to documentation of audit evidence and reviewing audit documentation, in terms of the relevant requirements.

How do we fix it?

Auditors must prepare properly for each set of audit procedures performed, ensuring that the way the tests fit into the audit process is clearly understood. When completing audit methodology templates and programmes, the objectives, assertions and risks being addressed need to be understood. The auditor should understand and document the amount being tested, the relevant assertions and the objectives of the tests to be performed. A proper understanding of the accounting policy, transactions and relevant accounting entries forms part of these preparations.

The nature, timing and extent of the work performed have to be clearly addressed in the working papers. Identifying details need to be recorded to ensure that procedures performed and evidence obtained are appropriate, and documented in a re-performable manner. Details on the determination of the sample size and sample selection method should also be included. Relevant extracts from the financial reporting framework and ISAs may be recorded as part of the background to the work performed.

Clear conclusions must to be documented based on the results of the audit procedures; further procedures performed based on these conclusions must be recorded in adequate detail, and the working papers updated with final adjustments passed by the client to ensure that the audit documentation and conclusions are consistent with the final audit opinion issued. The job is not complete until control deficiencies have been reported to management and compliance with other legislative reporting duties has been ensured, all of which should be recorded in the working papers.

Summary

Documentation should reflect the following, in order for another auditor to understand:
  • Nature, timing and extent of procedures, and evidence and its identifying details
  • Results of audit procedures
  • Significant matters, conclusions and professional judgments
  • Details of significant discussions
  • How significant inconsistencies were addressed.

Conclusion

You can go far with a good working paper checklist and thorough reviewing of audit documentation, but it is still difficult to spot your own documentation deficiencies. If you have any questions, or need an independent professional to review and assess your audit documentation, you are welcome to contact LEAF for expert technical advice, thorough file reviews and practical guidance.

References

  1. IRBA: Public Inspections Report, 2018
  2. IAASB: ISA 230 Audit documentation, effective for audits of financial statements for periods beginning on or after 15 December 2009.

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