AUDIT DOCUMENTATION AND COMMUNICATION WITH TCWG

It is the principal support for the representation that the audit is performed in accordance with PSAs and for the opinion

Audit Documentation

Audit Documentation is also called

Working papers, workpapers, or audit file

Audit Documentation serves as the record of:

1. Audit procedures performed

2. Relevant audit evidence obtained

3. Conclusions the auditor reached

Audit Documentation include the following:

1. Audit programs

2. Analyses

3. Issues memoranda (agenda sheet)

4. Correspondence (including e-mail) concerning significant matters

5. Checklists

6. Summaries of significant matters

7. Letters of confirmation and representations

Auditor’s Objective:

The auditor should prepare, on a timely basis, audit documentation that provides:

• A sufficient and appropriate record of the basis for the auditor’s report; and

• Evidence that the audit was performed in accordance with PSAs and applicable legal and regulatory requirements

Primary Purposes of Audit Documentation

• Evidence of the auditor’s basis for a conclusion about the achievement of the overall objective of the auditor (Expression of Conclusion); and

• Evidence that the audit was planned and performed in accordance with PSAs and applicable legal and regulatory requirements (Compliance to Standards)

Audit Documentation helps the auditor 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 finalized

Other Purposes of Audit Documentation:

• Assisting the audit team to plan and perform the audit

• 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 PSA 220 (redrafted), “Quality Control for an Audit of Financial Statements”

• Enabling the audit team to be accountable for its work

• Retaining a record of matters of continuing significance to future audits

• Enabling the conduct of quality reviews and inspections in accordance with PSQM 2

• Enabling the conduct of external inspections in accordance with applicable legal, regulatory or other requirements

Audit documentation may also be used as a reference when reconstructing a client’s accounting records (T/F)

True

He is an individual (whether internal or external to the firm) with practical audit experience, and a reasonable understanding of:

• audit processes;

• PSAs and applicable legal and regulatory requirements;

• the business environment in which the entity operates; and

• auditing and financial reporting issues relevant to the entity’s industry

Experienced Auditor

Basic Content 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:

• The nature, timing, and extent of the audit procedures performed to comply with PSAs and applicable legal and regulatory requirements:

  a. The identifying characteristics of the specific items or matters tested

  b. Who performed the audit work and the date such work was completed

  c. Who reviewed the audit work performed and the date and extent of such review

• The results of the audit procedures performed and the audit evidence obtained; and

• Significant matters arising during the audit and the conclusions reached thereon, and significant professional judgments made in reaching those conclusions.

Factors affecting form, content, and extent

The form, content and extent of audit documentation depend on factors such as:

a. The size and complexity of the entity.

b. The nature of the audit procedures to be performed;

c. The identified risks of material misstatement;

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; and

g. The audit methodology and tools used.

Significant Issues

The auditor should document findings or issues that are significant such as

a. Selection, application, and consistency of accounting principles

b. Results of audit procedures indicating information could be materially misstated or a need to revise the auditor's previous assessment of risks of material misstatement

c. Circumstances causing auditor significant difficulty in applying audit procedures (e.g., lack of responsiveness, lack of original documents)

d. Findings that could result in modification of the auditor's report

Each working paper must be properly identified with information such as the client’s name, the type of working paper, a description of its content, and the date or period covered by the examination

Heading

It refers to the use of lettering or numbering system (for example “A” for Cash lead schedule). It is also used to aid in cross-referencing essential information,

Indexing

Its main purpose is to provide a trail useful to supervision in reviewing in the working papers.

Cross-indexing or cross-referencing

These are the symbols in the working paper that describe the audit procedures performed

Tick Marks

These working papers normally contain information contains historical data about the client that are of continuing relevance to the audit

Permanent Working Papers

Examples of Permanent Working Papers

• AOI and by-laws

• Minutes of the meeting, legal documents and agreements

• Information concerning the industry, economic environment and legislative environment

• Information related to understanding of internal control and assessment of control risk, organization charts, flowcharts, questionnaires and other internal control information

• Copies of communications with other auditors, experts, and other third parties

• Copies of letters or notes concerning audit matters communicated to or discussed with the entity, including material weaknesses in internal control

These working papers pertain to the current year and include all audit documentation applicable to period under audit

Current Working Papers

Examples of Current Working Papers

• A copy of the FS

• Overall audit strategy

• Audit plan

• Audit program

• General information

• Working trial balance

• Assembly sheets or lead schedules

• Adjusting and reclassification entries

• Audit memoranda

• Supporting schedules

The auditor should apply appropriate and reasonable controls for audit documentation to (confidentiality):

• Clearly determine when and by whom audit documentation was created, changed or reviewed

• Protect integrity of information at all stages of the audit

• Prevent unauthorized changes

• Allow access to audit team and other authorized parties

Ownership of Audit Documentation

• Audit documentation is the property of the auditor

• It may serve as a reference source for the client but it should not be considered as part or as substitute for the client’s records

Audit documentation should be retained for a period of time sufficient to meet the auditor’s needs and to satisfy applicable legal and regulatory requirements (T/F)

True

Retention Period

• PSA 230 -

• SEC -

• PSA 230 - no shorter than 5 years

• SEC - at least 10 years from the date of auditor’s report or the date of group audit report, whichever is later

When does the auditor shall assemble the audit documentation in an audit file and complete the administrative process of assembling the final audit file?

Not later than 60 days after the date of the auditor’s report

After the documentation completion date, the auditor must not delete or discard audit documentation before the end of the specified retention period (T/F)

True

When the auditor finds it necessary to make an addition (including amendments) to audit documentation after the documentation completion date the auditor should document the additions:

1. When and by whom such changes were made and (where applicable) reviewed

2. The specific reasons for the changes

3. The effect, if any, of the change on the auditor’s conclusions

The audit working paper that reflects the major components of an amount reported in the financial statements

Lead Schedule or Assembly Sheet

A schedule listing account balances for the current and previous years, and columns for adjusting and reclassifying entries proposed by the auditors to arrive at the final amount that will appear in the financial statements

Working Trial Balance

Auditor’s Objective (Communication with TCWG)

• Communicate clearly with TCWG the responsibilities of the auditor in relation to the FS audit, and an overview of the planned scope and timing of the audit;

• Obtain from TCWG information relevant to the audit;

• Provide TCWG with timely observations arising from the audit that are significant and relevant to their responsibility to oversee the financial reporting process; and

• Promote effective two-way communication between the auditor and TCWG

It refers to person(s) or organization(s) with responsibility for overseeing the strategic direction of the entity and obligations related to the accountability of the entity, which includes overseeing the financial reporting process

Those Charge With Governance

It pertains to person(s) with executive responsibility for the conduct of the entity’s operations

Management

TCWG is responsible for the preparation of the FS (T/F)

False (approving, management is responsible for the preparation of FS)

When the auditor communicates with a subgroup of TCWG, example, audit committee or an individual, the auditor shall determine whether the auditor also needs to communicate with the governing body (T/F)

True

Matters to be Communicated

1. Auditor’s Responsibility

2. Planned Scope and Timing of the Audit

3. Auditor’s Independence

4. Significant Findings In the Audit

Significant Findings In The Audit

The auditor shall communicate with TCWG:

• The auditor's views about significant qualitative aspects of the entity's accounting practices, including accounting policies, accounting

  estimates, and FS disclosures.

• Significant difficulties, if any, encountered during the audit.

• Unless all of TCWG are involved in managing the entity:

  a. Significant deficiency that has come to the auditor's attention

  b. Significant matters, if any, arising from the audit that were discussed, or subject to correspondence with management, and

  c. Written representations the auditor is requesting

• Other matters arising from the audit that, in the auditor's professional judgment, are significant to the oversight of the financial reporting process.

The auditor shall communicate with TCWG ______

on a timely basis