Ch 10. documentation

1. DOCUMENTATION

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Documentation means the material (working papers) prepared by and
for, or obtained and retained by the auditor in connection with the
performance of the audit. Working papers may be in the form of data
stored in paper, film, electronic media or other media.

3. Amin Siddiki FCA
Defination Documentation or working papers is the record
of procedures performed, relevant evidence
obtained and conclusions reached.
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All assurance work must be documented: the working papers are the
tangible evidence of the work in support of the conclusion.

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Audit documentation or working paper should provide:
 A sufficient and appropriate record of the basis for the assurance
provider’s report; and
 Evidence that the engagement was performed in accordance with
standards and applicable legal and regulatory requirements.

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Purposes of Keeping documentation or working papers
Particularly in relation to audit, assurance providers record their work to:
a. Assist the audit team to plan and perform the audit.
b. Assist the relevant members of the team to direct supervise work.
c. Enable the audit team to be accountable for its work (and to prove
adherence to BSAs in a litigious situation). and
d. Retain a record of matters of continuing significance to future audits.
e. Enable an experienced auditor to carry out quality control reviews.
f. Enable an experienced auditor to conduct external inspections in
accordance with applicable legal, regulatory or other requirements.

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Form and Content of Documentation or Working Papers
Working papers should be sufficiently complete and detailed to
provide an overall understanding of the engagement.
The auditor should record in the working papers information on
planning the audit work, the nature, timing and extent of the audit
procedures performed, the results thereof, and the conclusions
drawn from the audit evidence obtained.

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The form and content of working papers are affected by matters such as:
• The nature of the audit procedures to be performed.
• The identified risks of material misstatements.
• The extent of judgment required in performing the work and
evaluating the results.
• The significance of the audit evidence obtained.
• The nature and extent of problems or exceptions from expected test
results identified.
• 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.
• The audit methodology and tools used.

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An audit file will normally contain the following working papers:
 Information obtained in understanding the entity and its
environment, including its internal control, such as the following:
o Information concerning legal documents, agreements and
minutes.
o Extracts from, or copies of, important legal documents,
agreements and minutes.
o Information concerning the industry, economic and legislative
environment within which the entity operates.
o Extracts from the entity’s internal control manual.
 Evidence of planning process including audit plans and any changes
thereto.
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 Evidence of auditor’s consideration of the work of internal audit and
conclusions reached.
 Analysis of transactions and balances.
 Analysis of significant ratios and trends.
 The identified and assessed risks of material misstatements.
 A record of the nature, timing, extent and result of audit procedures.
 Evidence that the work performed by assistants was supervised and
reviewed.
 An indication as to who performed the audit procedures and when
they were performed.
 Details of audit procedures applied regarding components whose
financial statements are audited by another auditor.

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 Copies of communication with other auditors, experts and other
third parties.
 Copies of letters or notes concerning audit matters communicated to
or discussed with management, including the terms of the
engagement and material weaknesses in internal control.
 Letters of representation received from the entity.
 Conclusions reached by the auditor concerning significant aspects of
the audit, including how exceptions and unusual matters, if any,
disclosed by the auditor’s procedures were resolved or treated.
 Copies of the financial statements and auditor’s reports.
 Notes of discussions about significant matters with management and
others.
 In exceptional circumstances, the reasons for departing from a basic
principle or essential procedure of a BSA and how the alternative
procedure performed achieved the audit objective.

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Automated Working Papers
Automated working paper packages have been developed which
can make the documenting of audit work much easier. Such
programs aid preparation of working papers, lead schedules, trial
balance and the financial statements themselves. These are
automatically cross referenced, adjusted and balanced by the
computer.

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The advantages of automated working papers are as follows:
 The risk of error is reduced.
 The working papers will be neater and easier to review.
 The time saved will be substantial as adjustments can be
made easily to all working papers, including working papers
summarizing the key analytical information.
 Standard forms do not have to be carried out to audit
location.
 Audit working papers can be emailed or faxed for review.
 These days most documents can be scanned and stored
electronically rather than in paper from.

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Filing Working Papers
Firms should have standard referencing and filing procedures
for working papers, to facilitate their review.
For recurring audits, working papers may be split between
permanent and current audit files, although this distinction is
fading as audit files become automated, and ‘permanent’
documents can be scanned and carried in computer files year on
year.

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Permanent Audit Files
These may contain:
• Engagement letters
• New client questionnaire
• The memorandum and articles of association
• Other legal documents such as prospectus, leases, sales
agreements
• Details of the history of the client’s business
• Board minutes of continuing relevance
• Previous years’ signed accounts, analytical procedures and
management letters
• Accounting systems notes, previous years’ control questionnaires

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Current Audit Files
These should be complied on a timely basis after the completion of the audit
and should contain:
 Financial Statements
 Account checklists
 Management accounts details
 Reconciliations of management accounts and financial statements
 A summary of unadjusted errors
 Report to partner including details of significant events and errors.
 Review notes
 Audit planning memorandum
 Time budgets and summaries
 Letter of representation
 Management letter
 Notes of board minutes
 Communications with third parties such as experts or other auditors

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Safe Custody and Retention of Documentation
Judgment may have to be used in deciding the duration of
holding working papers, and further consideration should be
given to the matter before their destruction. All firms should
have a document retention policy and auditing standards
require auditors to keep all audit working papers for a
reasonable period of time from the end of the accounting period
to which they relate.

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According to the Companies Act 1994, section 181 (5), “The books of
accounts of every company relating to a period of not less than 12 years
immediately preceding the current year together with vouchers relevant
to any entity in such books of account shall be preserved in good order.”
Given that assurance work must be kept confidential, it is important that
firms have security procedures over their retained working papers.
Paper documents must be kept securely, in locked premises. Electronic
documents should be protected by electronic controls.

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Ownership of and Right to Access to Documentation
Working papers are the property of the assurance providers. They are not
a substitute for, nor part of, the entity’s accounting records. However,
the report becomes the property of the client once it has been issued.
Assurance providers must follow ethical guidance on the confidentiality
of working papers. As working papers belong to the firm, the assurance
providers are not required to show them to the client. However, the firm
may show working papers to the client at their discretion, so long as the
assurance process is not prejudiced.

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The table shows how the ownership of documents depends on the nature of
the work being carried out.
Auditing
Doc. Prepared by auditor to carry out audit Auditor
Audit Report Client
Accountancy
Accounting Records Client
Financial Statements Client
Draft Financial Statements Auditor
Correspondence with third parties Auditor

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