Audit Documentation PDF

AUDIT DOCUMENTATION 6.3 a Sameer received a news alert on his mobile pointing to unconfirmed media reports of providing a Digi locker type facility to auditors for keeping audit documentation in times to come. He immediately grasped the idea as...

AUDIT DOCUMENTATION 6.3 a Sameer received a news alert on his mobile pointing to unconfirmed media reports of providing a Digi locker type facility to auditors for keeping audit documentation in times to come. He immediately grasped the idea as Aadhar card, senior secondary school mark sheet and driving license were being stored by him in such an electronic locker. “Such a facility, if it happened to materialize in future in whatever form, would provide many benefits which come with such an electronic storage”, he pondered. Audit evidence which an auditor obtains by performing various audit procedures along with details of those procedures have to be put into writing. Further, inferences drawn upon by the auditor from evidence obtained and conclusions reached are also documented. Sameer was spontaneously nodding that auditing was, indeed, a logical process. Without proper documentation, an audit has no legs to stand upon. It is audit documentation which serves as a record of audit work performed. He was also mulling over that, in fact, audit documentation throws up a sort of protective shield around auditors. If an auditor plans and performs his work professionally, his working papers will come to his rescue, in case such a situation arises. Conclusions reached by him can be traced to his working papers. “Oh! That is importance of documentation”, he exclaimed. Now, he understood why Shekhar’s seniors used to prompt him to make correspondence with company’s officers on mail. Because, it is the documentation that makes the difference. They were right because consequences of not making proper documentation were known to them and poor guys like us were still on learning curve. 1. AUDIT DOCUMENTATION SA 230 on “Audit Documentation”, deals with the auditor’s responsibility to prepare audit documentation for an audit of financial statements. It is to be adapted as necessary in the circumstances when applied to audits of other historical financial information. The specific documentation requirements of other SAs do not limit the application of this SA. Laws or regulations may establish additional documentation requirements. © The Institute of Chartered Accountants of India  a 6.4 AUDITING AND ETHICS 1.1 Definition of Audit Documentation: Audit Documentation refers to 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.) 1.2 Objective of the Auditor: The objective of the auditor is to prepare documentation that provides: (a) A sufficient and appropriate record of the basis for the auditor’s report; and (b) Evidence that the audit was planned and performed in accordance with SAs and applicable legal and regulatory requirements. To prepare documentation that provides: a) A sufficient and appropriate Objective of record of the basis for the the Auditor auditor’s report; and b) Evidence that the audit was planned and performed in accordance with SAs. 1.3 Nature of Audit Documentation Audit documentation provides: (a) evidence of the auditor’s basis for a conclusion about the achievement of the overall objectives of the auditor; and © The Institute of Chartered Accountants of India  AUDIT DOCUMENTATION 6.5 a (b) evidence that the audit was planned and performed in accordance with SAs and applicable legal and regulatory requirements. 1.4 Purpose of Audit Documentation The following are the purpose of Audit documentation: 1. Assisting the engagement team to plan and perform the audit. 2. Assisting members of the engagement team to direct and supervise the audit work, and to discharge their review responsibilities. 3. Enabling the engagement team to be accountable for its work. 4. Retaining a record of matters of continuing significance to future audits. 5. Enabling the conduct of quality control reviews and inspections in accordance with SQC 1. 6. Enabling the conduct of external inspections in accordance with applicable legal, regulatory or other requirements. ILLUSTRATION 1 A new team member of the auditors of Extremely Vibrant Limited was of the view that Audit Documentation does not help in planning the audit of any company. Explain whether Audit Documentation has any relation with regard to planning the audit of a company. SOLUTION Audit Documentation helps in planning the audit of a company in a proper manner and also helps in conducting the audit of that company in a more effective way. 1.5 Form, Content and Extent of Audit Documentation  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. (b) The results of the audit procedures performed and the audit evidence obtained and © The Institute of Chartered Accountants of India  a 6.6 AUDITING AND ETHICS (c) Significant matters arising during the audit and the conclusions reached thereon and significant professional judgements made in reaching those conclusions.  Further in documenting the nature, timing and extent of audit procedures performed, the auditor shall record: (a) The identifying characteristics of the specific items or matters tested. (b) Who performed the audit work and the date such work was completed; and (c) Who reviewed the audit work performed and the date and extent of such review.  The auditor shall document discussions of significant matters with management, those charged with governance, and others, including the nature of the significant matters discussed and when and with whom the discussions took place.  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 form, content and extent of audit documentation depend on factors such as: 1. The size and complexity of the entity. 2. The nature of the audit procedures to be performed. 3. The identified risks of material misstatement. 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. 1.6 Examples of Audit Documentation Audit documentation may be recorded on paper or on electronic or other media. © The Institute of Chartered Accountants of India  AUDIT DOCUMENTATION 6.7 a Example Audit Documentation include: Audit programmes. Analyses. Issues memoranda. Summaries of significant matters. Letters of confirmation and representation. Checklists. Correspondence (including e-mail) concerning significant matters. The auditor may include copies of the entity’s records (for example, significant and specific contracts and agreements) as part of audit documentation. Audit documentation is not a substitute for the entity’s accounting records. The auditor need not include in 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. Audit Correspondence programmes (including e-mail) concerning Analyses significant matters AUDIT DOCUMENTATION INCLUDE Checklists Issues memoranda Letters of Summaries confirmation of and significant representation matters © The Institute of Chartered Accountants of India  a 6.8 AUDITING AND ETHICS 1.7 Timely Preparation of Audit Documentation The auditor shall prepare audit documentation on a timely basis. 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 after the audit work has been performed is likely to be less accurate than documentation prepared at the time such work is performed. 1.8 Audit File Audit file may be defined as one or more folders or other storage media, in physical or electronic form, containing the records that comprise the audit documentation for a specific engagement. one or more folders or other storage media in physical or electronic form, containing the record that comprise the audit documentation for a specific engagement ILLUSTRATION 2 While auditing the books of accounts of Very Careful Limited for the financial year 2020-21, a team member of the auditors of Very Careful Limited was of the view that with regard to audit of the company, no relation exists between Audit File and Audit Documentation. Explain the relationship between Audit File and Audit Documentation. SOLUTION Audit file may be defined as one or more folders or other storage media, in physical or electronic form, containing the records that comprise the audit documentation for a specific engagement. The auditor shall assemble the audit documentation in an audit file and complete the administrative process of assembling the final audit file on a timely basis after the date of the auditor’s report. © The Institute of Chartered Accountants of India  AUDIT DOCUMENTATION 6.9 a 1.9 Assembly of the Final Audit File The auditor shall assemble the audit documentation in an audit file and complete the administrative process of assembling the final audit file on a timely basis after the date of the auditor’s report.  SQC 1 “Quality Control for Firms that perform Audits and Review of Historical Financial Information, and other Assurance and related services”, 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. 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: Deleting or discarding superseded documentation. Sorting, collating and cross-referencing working papers. Signing off on completion checklists relating to the file assembly process. Documenting audit evidence that the auditor has obtained, discussed and agreed with the relevant members of the engagement team before the date of the auditor’s report.  After the assembly of the final audit file has been completed, the auditor shall not delete or discard audit documentation of any nature before the end of its retention period.  SQC 1 requires firms to establish policies and procedures for the retention of engagement documentation. The retention period for audit engagements ordinarily is no shorter than seven years from the date of the auditor’s report, or, if later, the date of the group auditor’s report. © The Institute of Chartered Accountants of India  a 6.10 AUDITING AND ETHICS 1.10 Documentation of Significant Matters and Related Significant Professional Judgements Judging the significance of a matter requires an objective analysis of the facts and circumstances. Examples of significant matters include: Matters that give rise to significant risks.  Results of audit procedures indicating (a) that the financial statements could be materially misstated, or (b) a need to revise the auditor’s previous assessment of the risks of material misstatement and the auditor’s responses to those risks.  Circumstances that cause the auditor significant difficulty in applying necessary audit procedures.  Findings that could result in a modification to the audit opinion or the inclusion of an Emphasis of Matter Paragraph in the auditor’s report. An important factor in determining the form, content and extent of audit documentation of significant matters is the extent of professional judgement exercised in performing the work and evaluating the results. Documentation of the professional judgements made, where significant, serves to explain the auditor’s conclusions and to reinforce the quality of the judgement. Such matters are of particular interest to those responsible for reviewing audit documentation, including those carrying out subsequent audits, when reviewing matters of continuing significance (for example, when performing a retrospective review of accounting estimates). Some examples of circumstances in which it is appropriate to prepare audit documentation relating to the use of professional judgement include, where the matters and judgements are significant: The rationale for the auditor’s conclusion when a requirement provides that the auditor ‘shall consider’ certain information or factors, and that consideration is significant in the context of the particular engagement. The basis for the auditor’s conclusion on the reasonableness of areas of subjective judgements (for example, the reasonableness of significant accounting estimates). © The Institute of Chartered Accountants of India  AUDIT DOCUMENTATION 6.11 a The basis for the auditor’s conclusions about the authenticity of a document when further investigation (such as making appropriate use of an expert or of confirmation procedures) is undertaken in response to conditions identified during the audit that caused the auditor to believe that the document may not be authentic. 1.11 Completion Memorandum or Audit Documentation Summary 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. Such a summary may facilitate effective and efficient review and inspection of the audit documentation, particularly for large and complex audits. Further, the preparation of such a summary may assist auditor’s consideration of the significant matters. It may also help the auditor to consider whether there is any individual relevant SA objective that the auditor cannot achieve that would prevent the auditor from achieving the overall objectives of the auditor. 1.12 Ownership of Audit Documentation  Standard on Quality Control (SQC) 1 provides that, unless otherwise specified by law or regulation, audit documentation is the property of the auditor.  He may at his discretion, make portions of, or extracts from, audit documentation available to clients, provided such disclosure does not undermine the validity of the work performed, or, in the case of assurance engagements, the independence of the auditor or of his personnel. © The Institute of Chartered Accountants of India