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AT Audit Documentation Red Sirug Page 1

AUDITING THEORY Red Sirug

AUDIT DOCUMENTATION (AUDIT WORKING PAPERS)

Audit Documentation represents the record of 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 auditors report (or audit opinion)

b. Evidence that the audit was planned and performed in accordance 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


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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 evidence obtained This includes:

a. Documentation of compliance with PSAs:

(1) Compliance with PSA 230 (Redrafted) Audit Documentation

(2) Compliance with other PSAs (other PSAs contain specific documentation requirements that are

intended to clarify the application of PSA 230)

b. Documentation of the nature, timing and extent of audit procedures: The auditor shall record:


(1) The identifying characteristics of the specific items or matters tested


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(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 judgments: This documentation serves to:

(1) Explain the auditor's conclusions and

(2) Reinforce the quality of the judgment

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 identifiedduring 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


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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 or 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 relevant; or

b. The circumstances envisioned do not apply because the requirement 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 the 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 changes 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 known to the auditor after the date

of the auditor's report but which existed 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, ordinarily not more than 60 days


after the date of the auditor's report

Changes to the audit documentation:


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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 agreed with the relevant

members of the engagement team before the date of the auditors 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 end 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 completed 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. Auditors judgment: The form, content and extent of audit documentation are based on the auditors

decision/judgment since it is neither necessary nor practical for the auditor to document every matter

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:


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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


d. Date or period covered by the examination

2. Dates and initial of staff auditors who performed the audit procedures and reviewers


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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-referenced to supporting documentation.

5. Tickmarks symbols that indicate the audit procedures performed

c. Form of audit documentation: Audit documentation may be recorded on 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 reached, 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 entity.

(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 errors

(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 Documentation:

In the case of recurring audits, working paper files are classified:


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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 entitys 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 years audit:


trategy and audit plan


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a detailed list of audit procedures (tests of controls 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 without 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 material

misstatement discovered by the auditor in the conduct 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 presentation 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 auditors 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 the 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


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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 clients 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:


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ew of the audit

documentation.


to determine if working papers adequately

support audit findings, conclusions, and opinion/reports.

Auditor/CPA firms 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 ordinarily 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 other media)

For example, appropriate controls should protect the integrity of the information at all stages of the

engagement, especially when the information is shared within the engagement 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 firms practice and to

satisfy any pertinent legal requirements of record retention.


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s from

the date of the auditors report, or, if later, the date of the group auditors 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 property 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, orgovernment regulatory or administrative body.

SA provision on ownership of audit documentation: Unless otherwise specified by law or regulation,

engagement documentation is the property of the firm (or auditor). The firm/auditor may, at its

discretion, make portions of, or extracts 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, they 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,

auditors working papers should not be regarded as part or substitute for the client's accounting

records.

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