Auditors support the conclusions in their reports with the audit documentation, also referred to as working papers or work papers. Audit documentation also facilitates the planning, performance, and supervision of the engagement and provides the basis for the review of the quality of the work by providing the reviewer with written documentation of the evidence supporting the auditor’s significant conclusions.
The auditor shall prepare audit documentation on a timely basis, which must be sufficient to enable an experienced auditor (an individual who has practical audit experience, and a reasonable understanding of (i) audit processes, (ii) ISAs and applicable legal and regulatory requirements. (iii) the business environment in which the entity operates, and (iv) auditing and financial reporting issues relevant to the entity’s industry), having no previous connection with the audit, to understand :
(a) the nature, timing and extent of the audit procedures performed to comply with the ISAs 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.
In documenting the nature, timing and extent of audit procedures performed, the auditor shall record :
(a) the identifying characteristics of the specific items or maters tested;
(b) who performed the audit work and the date such work was completed; and
(c) who reviewed the audit work performed and the date and extent of such review.
ISA 230 Audit Documentation, para. 14-16 regulates the assembly of the final audit file. The auditor shall assemble the audit documentation in the audit file and complete the administrative process of assembling the final audit file on a timely basis after the date of the auditor’s report. After the assembly of the final audit file has been completed, the auditor shall not delete or discard audit documentation of any nature before the end of its retention period.
Audit documentation may be recorded on paper or on electronic or other media. Examples of audit documentation include audit programs, analyses, issues memoranda, summaries of significant matters, letters of confirmation and representation, checklist and also correspondence (including e-mail) concerning significant matters.
International Standard on Quality Control (ISQC) 1 requires firms to establish policies and procedures for the timely completion of the assembly of audit files. An 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.
The completion of the assembly of the final audit file after the date of the auditor’s report is an administrative process that does not involve the performance of new audit procedures or the drawing of new conclusions. Changes may, however, be made to the audit documentation during the final assembly process if they are administrative in nature. Example of such changes include :
- Deleting or discarding superseded documentation
- Sorting, collating and cross-referencing working papers
- Signing off on completion checklist relating to the file assembly process
- Documenting audit evidence that the auditor has obtained, discussed and agreed with the relevant members of the engagement team before the date of the auditor’s report.
ISQC 1 also requires firms to establish policies and procedures for the retention of engagement documentation. The retention period for audit engagements ordinarily is no shorter than 5 (five) years from the date of the auditor’s report, or, if later, the date of the group auditor’s report.
While PCAOB in its Auditing Standard No. 3 Audit Documentation requires the auditor to retain audit documentation for seven years from the date the auditor grants permission to use the auditor’s report in connection with the issuance of the company’s financial statements (report release date), unless a longer period of time is required by law. If a report is not issued in connection with an engagement, then the audit documentation must be retained for seven years from the date that fieldwork was substantially completed. If the auditor was unable to complete the engagement, then the audit documentation must be retained for seven years from the date the engagement ceased. Read further
“The skill of an accountant can always be ascertained by an inspection of his working papers.” – Robert H. Montgomery, Montgomery’s Auditing, 1912