This blog is written by Mr. Waheed Ahmad, Associate Audit and Assurance Services. Please read this blog and provide your valued comments.
ISA 230 states that the objectives of audit documentation are to provide:
- a sufficient and appropriate record of the basis for the auditor’s report
- evidence that the audit was planned and performed in accordance with ISAs, and applicable legal and regulatory requirements.
TIMELINESS, FORM, CONTENTS AND EXTENT OF AUDIT DOCUMENTATION
It should be self-evident that if audit documentation is to serve the purposes described above, then it must be prepared on a timely basis. It is therefore not surprising that timely preparation of audit documentation is a mandatory requirement of ISA 230.
However, ISA 230 clearly indicates that the quality of the audit documentation for a specific engagement is measured by the extent to which an experienced auditor, having no previous connection with the audit, is able to understand:
- the nature, timing, and extent of the audit procedures performed to comply with ISAs and applicable legal and regulatory requirements
- the results of the audit procedures performed, and the audit evidence obtained
- significant matters arising during the audit, the conclusion reached on these, and the significant professional judgments made when reaching those conclusions.
It is not practical or necessary for auditors to test every transaction in a large population for specified attributes, nor is it practical or necessary for auditors to document all the matters they have considered in carrying out their audit work. Simply put, in an audit file, the audit work documented must be sufficient and appropriate in the circumstances for the matter being considered. When considering what is ‘sufficient and appropriate in the circumstances’ in order to comply with the requirements of specified ISAs, auditors should consider other documents included within the audit file.
In forming an overall judgment as to whether financial statements show a true and fair view, auditors must decide whether there is any material misstatement in the financial statements. In forming such judgment, they must therefore consider and document significant matters arising from the audit. Additionally, where such matters are related to significant professional judgment they must document the professional judgments made. This requirement – to document significant matters and the professional judgments made – highlights the matters and explains the auditor’s conclusions. It also assists any reviewer of the audit work to evaluate the quality of the judgment exercised, and helps those carrying out subsequent audits when they review matters of continuing significance. ISA 230 suggests to prepare and retain, as part of the audit documentation, a ‘completion memorandum’. This memorandum describes the significant matters identified during the audit and how they were addressed, and include cross-references to other relevant supporting documentation.
A completion memorandum helps auditors focus on the significant matters arising, and on whether all audit objectives have been met in connection with them. It also helps facilitate any subsequent (internal or external) reviews or inspections of the audit work carried out.
Purpose of the preparation of audit documentation is to enable audit staff to be accountable for the audit work they carry out. The duties of individual audit team members will vary, depending on their level of experience, qualifications, the availability of audit staff, and the time budgeted for the completion of the work.
Irrespective of who carries out the audit procedures, it is important that appropriate identifying characteristics of those procedures are recorded when identifying specific items or matters tested. Such characteristics will vary:
- For an observation procedure, the auditor may record the nature of the procedure, where and when it was carried out, the individuals involved, and their respective responsibilities.
- For a procedure requiring the selection of all items with specific attributes in a given population, the auditor may record the score of the procedure, and identify the population.
- For a procedure enquiring into employees of the audited entity, the auditor may record the dates of the inquiries and the job titles of the employees.
Clearly, having set out tests to meet specified audit objectives, test results should be clearly documented. Similarly, the results of investigations into exceptions or inconsistencies must be clearly recorded, so that they can be clearly understood by the reviewer.