Standard of Auditing: 230 Audit Documentation

MEANING OF AUDIT DOCUMENTATION

Audit documentation is the process of Collecting, Recording & Preparing Working Papers. It is the record of Audit Procedures performed, Test of Controls adopted, Substantive Procedures performed, Audit Evidence obtained (Oral/ Visual/ Documentary) & Conclusions are drawn as a result of audit (which may be modified or unmodified)

NATURE OF AUDIT DOCUMENTATION

  • It may include entity’s records like significant & specific contracts & agreements) as part of Audit Documentation.
  • Not a substitute for entity’s accounting records.
  • Oral explanations by Auditor not represent adequate support for work auditor performed or conclusions auditor reached, but may be used to explain or clarify info contained in Audit Documentation.
  • Auditor need not to include followings in Audit documentation: –
    • Superseded drafts of working papers & Financial Statement
    • Notes that reflect incomplete or preliminary thinking,
    • Previous copies of docs corrected for typographical or other errors & duplicates of documents

Assembly of Audit File as per SQC 1

  • Auditor to assemble Audit documentation in Audit File in 60 days of Completion of Audit
  • Auditor to Retain Audit file for 7 yrs. (No working paper deleted/ discarded up to 7 yrs. From Audit Report.

Purposes Served by Audit Documentation

• Records for Future Audit
• Assist Engagement Team to plan &perform Audit.
• Assist in Supervision of Audit Work
• Enable Engagement Team to be accountable for users
• Enable Conduct of Quality Control Reviews as per SQC 1
• Enabling Conduct of External Inspections in accordance with Legal, Regulatory framework.

FORM, CONTENTS & EXTENT OF AUDIT PROCEDURE

Make Documentation Sufficient to Understand

• Who performed Audit work & date such work was completed
• Who reviewed Audit work performed & Date & Extent of such review
• Significant matters arising in audit, conclusions reached & professional judgments made to reach conclusions.

Nature Time Extent of Audit Procedures

  • To comply with the SAs & Applicable legal and regulatory requirements.
  • In documenting NTE of Audit procedures performed, Auditor to record & identify Characteristics of Specific items or matters tested

Other Significant Matters to Document

NTE of Audit Procedures to comply with laws: –

  • Results of Audit Procedures & Audit evidences obtained
  • Significant matters arising during Audit & Discussion of matters with Those Charged With Governance.
  • Reasons for Discarding/ Modifying/ Deleting working papers after 7 yrs.
  • Sometimes some SA’s require mandatory documentation.
  • Conclusions reached thereon& their effect on audit report.
  • How Auditor addressed Inconsistent Info identified with Auditor’s Final Conclusion.
  • Alternative Audit Procedures performed to achieve SA requirement departed & its reasons.

Specific Documentation

Documentation of Departure from a relevant requirement: –

  • Reasons for the departure
  • Alternative procedures performed
    Documentation of Discussions: –
  • Significant Matters Discussed with Mgt & TCWG.
  • When & with whom Discussion took place.
  • How Auditor address inconsistency (if any detected during discussion)

After Date of Auditor’s report

If under Exceptional circumstances, Auditor performs New or Additional audit
procedures or Draws new conclusions, Auditor to document: –

  • New or Additional Audit Procedures performed
  • Circumstances encountered
  • Effect on Auditor’s report
  • Audit Evidence obtained & conclusions reached
  • When & by whom resulting changes to Audit documentation were made & reviewed.

Factors affecting Form, Contents & Extent of Audit

  • Identified risks of Material Misstatements (MM)
  • Nature of Audit Procedures to be performed
  • Size & Complexity of Entity
  • Significance of Audit Evidence obtained
  • NTE of exceptions identified
  • Audit methodology & tools used.
  • Need to document Conclusion

Standard of Auditing 265: Communicating Deficiencies in Internal Control to Those Charge With Governance

Deficiency in Internal Control

  • When Internal Controls is designed, implemented or operated in a way that it is either unable to prevent, detect or correct MMs on timely basis OR
  • When internal control system does not exists.
    (Individually or combined deficiencies significant to judgment of Auditor = communicated to TCWG & Letter of Weakness describing such weakness communicated in writing to Management)

Identify Deficiencies

• Auditor to Determine on basis of Audit performed if he identified 1 or > deficiencies
• It depends on Occurrence of Misstatement & also on Likelihood to occur Misstatement (Ex: – Non disclosure of Related Party Transactions; Assets are overstated & Liabilities are understated)
• If Auditor has identified 1 or more deficiencies in internal control = Auditor to determine whether individually or in combination, they constitute significant deficiencies.

Communications of Deficiencies

Auditor to communicate in Writing on Timely basis: –

  • To TCWG = Significant deficiencies in internal control identified
  • To Management = Significant & Other deficiencies that in auditor’s professional judgment are of sufficient importance to merit Management attention

Indicators of Significant Deficiencies

• Evidence of Ineffective Control Environment
• Absence/ Evidence of Ineffective Risk assessment process in Entity
• Evidence of Ineffective response to Identified Risk
• Misstatements detected by Auditor not prevented, detected & corrected by Internal Control
• Evidence of mgt inability to Oversee Preparation of Financial statement
• Disclosure of MM due to error or fraud as prior period items in current years Statement of Profit & Loss Account.

Content of Written Communication of Significant Deficiencies

• Description of deficiencies & Explanation of their potential effects
• Sufficient info to enable TCWG & mgt to understand Context of communication
In particular, Auditor to explain that:-

  • Purpose of audit to express an opinion on Financial Statement
  • Audit include consideration of internal control relevant to the preparation of Financial Statement to design audit procedures appropriate in circumstances but not to expressing an opinion on
    effectiveness of Internal control
  • Matters reported are limited to those deficiencies that auditor identified during audit & that Auditor has concluded are of sufficient importance to merit being reported to Those Charged With Governance.

Read in details : ICAI

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