AUDIT DOCUMENTATION

Definition

Audit documentation means the record of audit procedures performed, relevant
audit evidence obtained, and conclusions the auditor reached.
The International Standards on Auditing (ISA 230), Audit Documentation,
emphasises the following areas as key points for audit documentation:

Objectives of Audit Documentation

(a) The auditor should prepare, on a timely basis, audit documentation that
provides:
(i) A sufficient and appropriate record of the basis for the auditor’s
report; and
(ii) Evidence that the audit was performed in accordance with ISAs
(International Standards on Auditing) and applicable legal and
regulatory requirements.
(b) Preparing sufficient and appropriate audit documentation on a timely
basis helps to enhance the quality of the audit and facilitates the
effective review and evaluation of the audit evidence obtained and
conclusions reached before the auditor’s report is finalised. Documentation
prepared at the time the work is performed is likely to be more accurate
than documentation prepared subsequently;
(c) Compliance with the requirements of this ISA together with the specific
documentation requirements of other relevant ISAs is ordinarily
sufficient to achieve the objectives in (b) above.
(d) In addition to these objectives, audit documentation serves a number of
purposes, including:
(i) Assisting the audit team to plan and perform the audit;
(ii) Assisting members of the audit team responsible for supervision
to direct and supervise the audit work, and to discharge their
review responsibilities in accordance with ISA 220, “Quality
Control for Audits of Historical Financial Information;”
(iii) Enabling the audit team to be accountable for its work;
(iv) Retaining a record of matters of continuing significance to future
audits;
(v) Enabling an experienced auditor to conduct quality control
reviews and inspections in accordance with ISQC 1 (International
Standards on Quality Control), “Quality Control for Firms that
Perform Audits and Reviews of Historical Financial Information,
and Other Assurance and Related Services Engagements”; and
(vi) Enabling an experienced auditor to conduct external inspections
in accordance with applicable legal, regulatory or other
requirements.

Nature of Audit Documentation

Audit documentation may be recorded on paper or on electronic or other media.
It includes, for example, audit programs, analyses, issues memoranda,
summaries of significant matters, letters of confirmation and representation,
checklists, and correspondence (including e-mail) concerning significant
matters. Abstracts or copies of the entity’s records, for example, significant
and specific contracts and agreements, may be included as part of audit
documentation if considered appropriate. Audit documentation, however, is
not a substitute for the entity’s accounting records. The audit documentation
for a specific audit engagement is assembled in an audit file.
The auditor ordinarily excludes from audit documentation superseded drafts
of working papers and financial statements, notes that reflect incomplete or
preliminary thinking, previous copies of documents corrected for typographical
or other errors, and duplicates of documents.

Form, Content and Extent of Audit Documentation

The auditor should prepare the audit documentation so as 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 ISAs and applicable legal and regulatory requirements;
Audit procedures performed include audit planning, as addressed in
ISA 300, “Planning an Audit of Financial Statements”;
(b) The results of the audit procedures and the audit evidence obtained;
and
(c) Significant matters arising during the audit and the conclusions reached
thereon.
The form, content and extent of audit documentation depend on factors such
as:
(a) The nature of the audit procedures to be performed;
(b) The identified risks of material misstatement;
(c) The extent of judgment required in performing the work and evaluating
the results;
(d) The significance of the audit evidence obtained;
(e) The nature and extent of exceptions identified;
(f) 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;
(g) The audit methodology and tools used; and
(h) It is, however, neither necessary nor practicable to document every matter
the auditor considers during the audit.
Oral explanations by the auditor, on their own, do not represent adequate
support for the work the auditor performed or conclusions the auditor reached,
but may be used to explain or clarify information contained in the audit
documentation.

Documentation of the Identifying Characteristics of Specific Items or
Matters Being Tested

In documenting the nature, timing and extent of audit procedures performed,
the auditor should record the identifying characteristics of the specific items or
matters being tested. Recording the identifying characteristics serves a number
of purposes. For example, it enables the audit team to be accountable for its
work and facilitates the investigation of exceptions or inconsistencies.
Identifying characteristics will vary with the nature of the audit procedure and
the item or matter being tested. For example:
(a) For a detailed test of entity-generated purchase orders, the auditor may
identify the documents selected for testing by their dates and unique
purchase order numbers;
(b) For a procedure requiring selection or review of all items over a specific
amount from a given population, the auditor may record the scope of
the procedure and identify the population (for example, all journal
entries over a specified amount from the journal register);
(c) For a procedure requiring systematic sampling from a population of
documents, the auditor may identify the documents selected by recording
their source, the starting point and the sampling interval (for example
a systematic sample of shipping reports selected from the shipping log
for the period from April 1 to September 30, starting with report number
12345 and selecting every 125th report);
(d) For a procedure requiring inquiries of specific entity personnel, the
auditor may record the dates of the inquiries and the names and job
designations of the entity personnel; and
(e) For an observation procedure, the auditor may record the process or
subject matter being observed, the relevant individuals, their respective
responsibilities, and where and when the observation was carried out.

Significant Matters

Judging the significance of a matter requires an objective analysis of the facts
and circumstances. Significant matters include, amongst others:
(a) Matters that give rise to significant risks (as defined in ISA 315,
“Understanding the Entity and its Environment and Assessing the Risks
of Material Misstatement”;
(b) Results of audit procedures indicating;
(i) that the financial information could be materially misstated, or
a need to revise the auditor’s previous assessment of the risks of
material mis-statement and the auditor’s responses to those risks;
(ii) Circumstances that cause the auditor significant difficulty in
applying necessary audit procedures; and
(iii) Findings that could result in a modification to the auditor’s report.
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. Such a summary may
facilitate effective and efficient reviews and inspections of the audit
documentation, particularly for large and complex audits. Further, the
preparation of such a summary may assist the auditor’s consideration of the
significant matters.
The auditor should document, discussions of significant matters with
management and others on a timely basis.
The audit documentation includes records of the significant matters discussed,
and when and with whom the discussions took place. It is not limited to records
prepared by the auditor but may include other appropriate records such as
agreed minutes of meetings, prepared by the entity’s personnel. Others with
whom the auditor may discuss significant matters include those charged with
governance, other personnel within the entity, and external parties, such as
persons providing professional advice to the entity.
If the auditor has identified information that contradicts or is inconsistent with
the auditor’s final conclusion regarding a significant matter, the auditor should
document how the auditor addressed the contradiction or inconsistency in
forming the final conclusion. The documentation of how the auditor addressed
the contradiction or inconsistency, however, does not imply that the auditor
needs to retain documentation that is incorrect or superseded.

Documentation of Departures from Basic Principles or Essential
Procedures

The basic principles and essential procedures in ISAs are designed to assist
the auditor in meeting the overall objective of the audit. Accordingly, other
than, in exceptional circumstances, the auditor complies with each basic
principle and essential procedure that is relevant in the circumstances of the
audit.
Where, in exceptional circumstances, the auditor judges it necessary to depart
from a basic principle or an essential procedure, that is relevant in the
circumstances of the audit, the auditor should document how the alternative
audit procedures performed achieve the objective of the audit, and, unless
otherwise clear, the reasons for the departure. This involves the auditor
documenting how the alternative audit procedures performed were sufficient
and appropriate to replace that basic principle or essential procedure.
The documentation requirement does not apply to basic principles and essential
procedures that are not relevant in the circumstances, i.e., where the
circumstances envisaged in the specified basic principle or essential procedure
do not apply.

Identification of Preparer and Reviewer

In documenting the nature, timing and extent of audit procedures performed,
the auditor should record:
(a) Who performed the audit work and the date such work was completed;
and
(b) Who reviewed the audit work performed and the date and extent of such
review.
The requirement to document who reviewed the audit work performed does not
imply a need for each specific working paper to include evidence of review.
The audit documentation, however, evidences who reviewed specified elements
of the audit work performed and when.

Assembly of the Final Audit File

The auditor should complete the assembly of the final audit file on a timely
basis, after the date of the auditor’s report. ISQC 1 requires firms to establish
policies and procedures for the timely completion of the assembly of audit
files. As ISQC 1 indicates, 60 days after the date of the auditor’s report is
ordinarily an appropriate time limit within which to complete the assembly of
the final audit file.
The completion of the assembly of the final audit file after the date of the
auditor’s report is an administrative process that does not involve the
performance of new audit procedures or the drawing of new conclusions.
Changes may, however, be made to the audit documentation during the final
assembly process if they, are administrative in nature. Examples of such
changes include:
(a) Deleting or discarding superseded documentation;
(b) Sorting, collating and cross-referencing working papers;
(c) Signing off on completion checklists relating to the file assembly process;
and
(d) Documenting audit evidence that the auditor has obtained, discussed
and agreed with the relevant members of the audit team before the
date of the auditor’s report.
After the assembly of the final audit file has been completed, the auditor should
not delete or discard audit documentation before the end of its retention period.
ISQC 1 requires firms to establish policies and procedures for the retention of
engagement documentation. As ISQC 1 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.
When the auditor 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 should, regardless of the nature of the modifications
or additions, document:
(a) When and by whom they were made, and (where applicable) reviewed;
(b) The specific reasons for making them; and
(c) Their effect, if any, on the auditor’s conclusions.
When exceptional circumstances arise after the date of the auditor’s report
that require the auditor to perform new or additional audit procedures or that
lead the auditor to reach new conclusions, the auditor should document:
(a) The circumstances encountered;
(b) The new or additional audit procedures performed, audit evidence
obtained, and conclusions reached; and
(c) When and by whom the resulting changes to audit documentation were
made, and (where applicable) reviewed.
Such exceptional circumstances include the discovery of facts regarding the
audited financial information that existed at the date of the auditor’s report
that might have affected the auditor’s report had the auditor then been aware
of them.

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