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DECLARATION

I, NAMRATA LAD Roll No. Student of COLLEGE NAME , studying in


M.Com Part- I hereby declare that I have completed the project on AUDIT
DOCUMENTATION

under

the

guidance

of

project

guide

Prof.

during the academic year 2015-16. The information submitted is true to the best
of my knowledge.

Date:
Place:

Signature

Introduction

Audit
The general definition of an audit is an evaluation of a person, organization, system,
process, enterprise, project or product. The term most commonly refers to audits in
accounting, internal auditing, and government auditing, but similar concepts also exist in
project management, quality management, water management, and energy conservation.
Auditing is defined as a systematic and independent examination of data, statements,
records, operations and performances (financial or otherwise) of an enterprise for a stated
purpose. In any auditing the auditor perceives and recognizes the propositions before him for
examination, collects evidence, evaluates the same and on this basis formulates his judgment
which is communicated through his audit report.

History

Historically, the word auditing has been derived from Latin word audire which means to
hear. According to Dicksee, traditionally auditing can be understood as an examination of
accounting records undertaken with a view to establishing whether they completely reflect
the transactions correctly for the related purpose. In addition the auditor also expresses his
opinion on the character of the statements of accounts prepared from the accounting records
so examined as to whether they portray a true and fair picture.

International Response to Auditing Needs


As a response to the above needs, the International Federation of Accountants (IFAC) was
established in 1973 with the objective of worldwide development and enhancement of the
accountancy profession. of high quality in the public interest. The International
Auditing and Assurance Standards Board (IAASB), earlier known as the International
Auditing Practices Committee, of the IFAC was established to improve the quality and
uniformity of practice throughout the world, by, inter alia, issuing International Standards
on Auditing (ISAs) and guidance on the application of the ISAs.

Indias Response to Auditing Needs


The Institute of Chartered Accountants of India was set up in 1949 to regulate the
profession of chartered accountancy in India. Since its establishment, the Institute has taken
numerous steps to ensure that its members discharge their duties with due professional care,
competence and sincerity. One of the steps is the establishment of the Auditing Practices
Committee, or the Auditing and Assurance Standards Board, as it is now known in
September, 1982. One of the main objectives of the Board is to issue auditing standards.
Accordingly, the Board issues Statements on Standard Auditing Practices and Auditing and
assurance Standards under the authority of the Council.

International Harmonisation of Auditing Standards


The Institute of Chartered Accountants of India is a member of the International
Federation of Accountants. Therefore, as a matter of policy, the auditing standards issued by
the ICAI are in harmony with the International Standards on Auditing. Till date, the IAASB
of the IFAC has issued thirty nine Engagement Standards, comprising one Standard on
Quality control (ISQC), thirty two ISAs, two International Standards on Review
Engagements (ISREs), two International Standards on Assurance Engagements (ISAEs) and
two International Standards on Related Services (ISRSs). The ICAI has issued thirty five
auditing standards corresponding to the Engagement Standards issued by the IAASB of the
IFAC and three auditing standards are in the pipeline.

Objective of Study

To understand the term Audit and Audit Documentation.


To learn the History of Auditing in India.
To comprehend the Assurance Engagement.
To study the Nature Timing, Extent of Procedures

To study the Technical Standards on Audit Documentation.


To understand the Importance of Audit Documentation

Rationale behind the Study

The purpose of this study is to establish standards and provide guidance on Audit
Documentation. The exercise of professional judgment is integral in applying the provisions
of this section. For example, professional judgment is used in determining the quantity, type,
and content of audit documentation consistent with this section.
The auditor must prepare audit documentation in connection with each engagement in
sufcient detail to provide a clear understanding of the work performed (including the
Nature, timing, extent and results,

of audit procedures performed), the audit evidence

obtained and its source, and the conclusions reached.


Audit documentation is an essential element of audit quality. Although documentation
alone does not guarantee audit quality, the process of preparing sufcient and appropriate
documentation contributes to the quality of an audit.

Research Problem

Audit is a vast term, to gather information regarding every aspect is not possible. To
obtain all the first hand data regarding Audit Documentation of specific organisation is also
not feasible.
The major problem faced while completing this project is the Time Constraint and
Resource Constraint.
Sometimes it so happened that I came across data that was relevant but not required
hence I couldnt use it. So, I have tried to be up to the point where as information is
concerned.
The data is gathered majorly from the secondary sources so is assumed to be True to its
form.

Research Methodology

Methodology plays a very important role in any project work. The effectiveness of the
Project depends on the correctness of the data collected and mainly the research methodology
used to collect the data.
Primary data
Primary data is data collected from an economist or analyst. It is the first hand
information gathered to satisfy the research need.
Here due to the time constraint the primary data could not be gathered.
Secondary data
Secondary data is the data that already exists which has been collected by some other
person or organization for their use and is generally made available to other researchers free
or at a concessional rata. Major use of the internet in business research is in the area of
secondary research the research report and database maintained by major research companies
are also available on the net.
Here the secondary data is obtained from the Internet

Review of Literature

The skill of an accountant can always be ascertained by an inspection of his working


papers. Robert H. Montgomery, Montgomerys Auditing, 1912 Montgomerys Auditing
was the primary source for auditors about the purpose and content of audit work papers until
the AICPA issued its first standard on audit working papers in 1967. But from 1967 until
now, authoritative auditing standards have provided guidance primarily for the content,
objectives, ownership and custody of auditors work papers. Major frauds and business
failures like the Enron Collapse focused attention on audit documentation and the issue of
work paper retention and have led to the laying down of strict regulations on audit
documentation Work papers/ Audit Documents provide the principal support for an auditor's
report. They keep auditors on track as they document the audit purpose, process, and
outcome for others .It is an important aspect of an auditors responsibilities. Yet, not many
would claim to enjoy the process of compiling and preparing work papers.
Many a time work papers are compiled after the completion of an audit, rather than as it
progressed. This practice is not very productive. Building work paper binders as you audit
enable your documentation to contribute to the value of the audit.

Meaning of Documentation
The word document is used to refer to a written or printed paper that bears the original,
official, or legal form of something and can be used to furnish decisive evidence or
information. Documentation refers to the act or an instance of the supplying of documents
or supporting references or records.
According to SA 230 on Audit Documentation issued by the Institute of Chartered
Accountants of India Documentation refers to The record of audit procedures performed,
relevant audit evidence obtained, and conclusions the auditor reached (terms such as
working papers or work papers are also sometimes used). Audit documentation is an
essential element of audit quality. Although documentation alone does not guarantee audit
quality, the process of preparing sufficient and appropriate documentation contributes to the
quality of an audit. The need for documentation originated in Western Countrieswhere
auditors were increasingly being hauled up before Courts of law. Documentation is the only
way an auditor can prove to outsiders that an effective audit was planned and performed
The requirements and contents for documentation may differ from case to case.

Assurance Engagements
Assurance refers to the auditors satisfaction as to the reliability of an assertion being made
by one party for use by another party. The degree of satisfaction achieved and therefore the
level of assurance which may be provided is determined by the procedures performed and
their results. There are three types of assurance engagements a chartered accountant may
perform:
(a) A reasonable assurance engagement.
Reasonable assurance means a high, but not absolute, level of assurance. The objective of a
reasonable assurance engagement is a reduction in assurance engagement risk to an
acceptably low level in the circumstances of the assurance engagement as the basis for a
positive form of expression of the chartered accountants conclusion.

In an audit, the Chartered Accountant provides a high (but not absolute) level of assurance on
the reliability of financial statements. The auditor provides a positive opinion which
essentially states that based on the work performed the financial statements comply with
relevant accounting standards and principles
(b) A limited assurance engagement.
The objective of a limited assurance engagement is a reduction in assurance engagement risk
to a level that is acceptable in the circumstances of the assurance engagement, but where that
risk is greater than for a reasonable assurance engagement, as the basis for a negative form of
expression of the chartered accountants conclusion.
In a limited assurance engagement, the chartered accountant expresses the conclusion in the
negative form, for example, Based on our work described in this report, nothing has come to
ourattention that causes us to believe that internal control is not effective, in all material
respects, based on XYZ criteria.
(c) Nil assurance engagement
Other frequently performed engagements in which no assurance is given include

Agreed-upon procedures engagements.


The preparation of tax returns where no conclusion conveying assurance is

expressed or compilations of financial or other information.


Consulting (or advisory) engagements, such as management and tax consulting.

Ethical principles and Quality control


The following elements of a quality control system apply to all assurance engagements

Leadership responsibilities for quality on the assurance engagement.


Ethical principles (Integrity, objectivity, Professional competence and due

care,
Confidentiality, professional behaviour)
Acceptance and continuance of client relationships and specific assurance

engagements.
Assignment of assurance engagement teams.
Assurance engagement performance.
Monitoring

Elements of an assurance engagement


The following are the elements of an assurance engagement
1. A three party relationship involving a chartered accountant, a
2.
3.
4.
5.

responsible party, and intended users;


An appropriate subject matter;
Suitable criteria;
Sufficient appropriate evidence; and
A written assurance report in the form appropriate to a reasonable
assurance engagement or a limited assurance engagement.

Data Analysis

Scope
This guideline shall be used by auditors in preparing documentation that provide
sufficient and appropriate record of the auditors work.

Nature and purposes of Audit Documentation

(i)

Audit documentation provides:

Evidence for the auditors basis for a conclusion about the achievement of
the overall objectives of the auditor;

Evidence that the audit was planned and performed in accordance with ISAs
and applicable legal and regulatory requirements.

(ii)

Audit documentation serves a number of additional purposes, including the


following:

Assisting the engagement team to plan and perform the audit

Assisting members of the engagement team to direct and supervise the audit
work

Enabling the engagement team to be accountable for its work

Retaining a record of matters of continuing significance to future audits

Enabling a conduct of quality control reviews and inspections

Enabling the conduct of external inspections;

Nature, Timing and Extent of Evidence-Gathering Procedures

1. The exact nature, timing and extent of evidence-gathering procedures will vary
from one assurance engagement to the next. In theory, infinite variations in
evidence-gathering procedures are possible. In practice, however, these are
difficult to communicate clearly and unambiguously. The chartered accountant
has to attempt to communicate them clearly and unambiguously and uses the
form appropriate to a reasonable assurance engagement or a limited assurance
engagement.
2. Reasonable assurance is a concept relating to accumulating evidence necessary
for the chartered accountant to conclude in relation to the subject matter
information taken as a whole. To be in a position to express a conclusion in the
positive form required in a reasonable assurance engagement, it is necessary for
the chartered accountant to obtain sufficient appropriate evidence as part of an
iterative, systematic assurance engagement process involving:

a) Obtaining an understanding of the subject matter and other assurance


engagement circumstances which, depending on the subject matter, includes
obtaining an understanding of internal control.
b) Based on that understanding, assessing the risks that the subject matter
information may be materially misstated.
c) Responding to assessed risks, including developing overall responses, and
determining the nature, timing and extent of further procedures.
d) Performing further evidence gathering procedures clearly linked to the
identified

risks,

using

combination

of

inspection,

observation,

confirmation, re-calculation, re-performance, analytical procedures and


enquiry, such further evidence gathering procedures involve substantive
procedures including, where applicable, obtaining corroborating information
from sources independent of the responsible party, and depending on the
nature of the subject matter, tests of the operating effectiveness of controls.
e) Evaluating the sufficiency and appropriateness of evidence.
3. Reasonable assurance is less than absolute assurance. Reducing assurance
engagement risk to zero is very rarely attainable or cost beneficial as a result of
factors such as the following
The use of selective testing;
The inherent limitations of internal control;
The fact that much of the evidence available to the chartered accountant is

persuasive rather than conclusive;


The use of judgment in gathering and evaluating evidence and forming

conclusions based on that evidence; and


In some cases, the characteristics of the subject matter when evaluated or
measured against the identified criteria.

4. Both reasonable assurance engagements and limited assurance engagements


require the application of assurance skills and techniques and the gathering of
sufficient appropriate evidence as part of an iterative, systematic process that
includes obtaining an understanding of the subject matter and other assurance
engagement circumstances. The nature, timing and extent of procedures for
gathering sufficient appropriate evidence in a limited assurance engagement are,
however, deliberately limited relative to a reasonable assurance engagement.
5. For some subject matters, there may be specific pronouncements to provide
guidance on procedures for gathering sufficient appropriate evidence for a

limited assurance engagement. In the absence of a relevant pronouncement, the


procedures for gathering sufficient appropriate evidence will vary with the
circumstances of the assurance engagement, in particular, the subject matter, and
the needs of the intended users and the engaging party, including relevant time
and cost constraints.
6. For both reasonable assurance engagements and limited assurance engagements,
if the chartered accountant becomes aware of a matter that leads him to question
whether a material modification ought to be made to the subject matter
information, he may pursue the matter by performing other procedures sufficient
him to report.

Form of documentation
Audit documentation may be in the form of:
Paper;
Electronic files; or
Other media.

WHAT NEEDS TO BE DOCUMENTED?


Audit documentation is the record of audit procedures performed, relevant audit evidence
obtained, and conclusions the auditor reached (terms such as working papers or
workpapers are also sometimes used. The term refers to both electronic (Word, Excel,
documents) and manual (hard copy paper) documents.

The terms working papers or

workpapers are also sometimes used.


Your audit documentation would typically include the following:
Identify the audit engagement. This means stating the entity name and period end (e.g., XYZ
Company, year ended December 31, 2012).

Who performed the work


Audit documentation needs to have a preparer signoff. This means that any review notes on
the work can be directed to the appropriate person, even if the audit fieldwork has been
finished.
You will also need to sign off the detailed audit procedure(s) in the Risk Assessment and
Audit Plan (RAAP) and Model Audit Program (MAP), including references to the audit
documentation where the testing was performed.
When you sign off on a working paper within , you also need to update the header and footer
to ensure the signoff is updated in the document. You can update the headers and footers for
all documents at once using the Document Manager button. Click on Refresh Documents
and select Update headers and footers.
When the work was performed
The date the work was performed will allow the reviewer to establish a timeline for the audit.
If audit work is done in stages (e.g., partial testing at interim and completion of testing of the
risks at year-end), or if subsequent events occur, it will be clear when the initial work was
performed and what evidence was available at that time. This is especially important if there
is more than one audit visit, or if an audit takes place over several months.
o For example, you have performed audit procedures for the inventory balance at
the year-end on 31 December, attending the entitys inventory count and found no
errors. Two weeks later, the warehouse burns down and the entire inventory is
destroyed. By dating your work, the field senior can tell that it was performed
before the fire and thus needs to be updated for this subsequent event.
Details of the work performed
The audit documentation should also state the risk that is being addressed, the audit
procedures performed, and the results of the audit testing performed on the identified risks.
The substantive procedures to perform can be found in the Model Audit Programs, both
regarding test of controls and substantive procedures to address the risks identified.
Click on the link (by holding down the Ctrl key) to be taken to Details of Work Performed
Illustration.

A key/legend to any symbols/highlighting used in the audit documentation.


A key/legend at the bottom of the audit documentation or in the tickmark sheet will explain
the meaning of any symbols or highlighting used. Even if a symbol/highlighting seem
obvious (such as ^ symbol to show that the numbers add up correctly) you need to explain
what it means. You should ask your field senior if there any common symbols that you
should use.
Click on the link (by holding down the Ctrl key) to be taken to Referencing and Symbol
Illustration.
Referencing the work performed. All work performed should be cross referenced to and
from any other audit documentation that it supports, or is supported by.
o Referencing is a top-down approach.
o First, reference from the general ledger (top) to the leadsheet (down). It is
essential that the leadsheet matches the general ledger because, as auditors, we
provide an opinion on the financial statements produced from the general ledger.
o Then, reference from the leadsheet (top) to the audit documentation (down) where
we are performing our audit procedures. The audit documentation where we
document our testing should be referenced, finally, to any supporting
documentation included in the audit file.
o Referencing and cross referencing should be done in red so that it is clear to see.
Manual (i.e., hard copies of audit documentation or working papers) should be denoted with
an M.
Cross-reference all audit documentation.
Wherever you have referenced to, that audit documentation should show a reference from,
bringing you back to the original audit documentation. This means that whatever audit
documentation the field senior reviews, they will be able to find all of the linked
documentation.
For example: If the Nat West bank reconciliation is put on file and is given 5114as its audit
documentation reference number, the period-end balance should be referenced TO the cash

leadsheet on audit documentation 5110. Likewise, the Nat West balance listed on the cash
leadsheet (audit documentation 5110) must also show a reference FROM the Nat West bank
reconciliation audit documentation 5114.

This way, whether looking at the bank

reconciliation or at the cash leadsheet, the reviewer will be able to find the other piece of
information.
As mentioned above, you must also fill in the relevant SAS documents (e.g., MAP) for the
tests performed and reference to the audit documentation where you have documented the
audit work performed to address the risks.
Click on the link (by holding down the Ctrl key) to be taken to Referencing and Symbol
Illustration.
Link the audit documentation where you have performed testing of risks to further
information needed to support the work performed.
If there is too much information to put on the face of a working paper then it should be put in
a tickmark.Tickmarks are used to provide additional context and/or support for information
contained in a Working Paper or within an engagement item. A tickmark is a reference to a
separate worksheet within the audit documentation where more details are given. This is to
prevent the leadsheet and document, where testing is performed, from becoming too crowded
with information, allowing the reviewer to see all of the pertinent information on the main
working paper, such as what work was done and the results of the testing to address the risks
of material misstatement. The reviewer can then go to the tickmark worksheet to see further
details; usually found as the last worksheet within the audit documentation.
A tickmark reference should be put next to the information that needs further explanation.
This clearly identifies what work was performed relative to the specific information, prevents
reviewer confusion of what the tickmark is referring to, and allows for clean, easy-to-read
audit documentation.
Some member firms have guidelines for the type of information that should or should not be
included in a tickmark, such as, details of errors found. Some member firms prefer to have
this documented in the working paper so they can easily identify errors found. Check with
your member firm on preferences in documentation.

o Click on the link (by holding down the Ctrl key) to be taken toTickmark
Worksheet Illustration.
Each field senior may have different preferences for how work is documented and therefore
it is important to check with your field senior before starting any work.
For additional guidance on what needs to be documented, refer to the following:
Performance SupportUsing the Model Audit Program
Performance SupportWorking with
AAM - P020: Prepare and Control Audit Documentation and P040: Review of Audit
Documentation

Details of Work Performed Illustration

Referencing and Symbol Illustration

Tickmark Worksheet Illustration

Per Details of Work


Performed Illustration,
these are the tickmark s
referenced on the working
paper

This information is too detailed to include on


the face of the working paper, therefore we
document the details in tickmarks shown
here.

Any result, misstatement, identified etc.


should be documented in the main working
paper. Further detail can still be in the

Any unused tickmarks should be left blank and any information in old tickmarks should
be deleted and the tickmark left blank. For example, if there is existing information for the
prior period, that is no longer applicable or incorrect in the current period, you should
either delete the old information and leave the tickmark blank or update the information
for current period.

WHAT IS A REVIEW NOTE AND HOW DO I DEAL WITH IT?


A review note is a tool used by reviewers to comment on your audit documentation. These
will be raised by your field senior, audit manager, and/or engagement partner throughout the
audit and are comments you must address.
Review notes can cover all kind of points, from asking you to expand on an explanation you
documented to asking you to increase your sample size and do additional testing. You can
also raise review notes as reminders for yourself or for other team members if you have not
completed your audit section before your last day on the engagement.

Review notes may be raised in different ways:


1) Using the Review Note Template working paper:
Review Note Templatethis is a Word template within . Reviewers may use this template for
leaving queries on SAS documents and manual audit documentation as a review note cannot
be created directly in these documents. That does not mean the reviewer will not use this
template for Word and Excel files as well.

2) Word and Excel electronic review notes using Tools:


Word and Excel review noteselectronic review notes created using Tools within Word and
Excel. Reviewers may use this method to attach their comment directly to the audit work
about which they have a comment.

3) Manual hand written review note document (occasionally used).


Click on the link (by holding down the Ctrl key) to be taken to Review Note Illustration
Template or Review Note IllustrationExcel
See below for some general dos and do nots of review notes:

When you receive your reviewed audit documentation, read all the review notes
first. If you have any questions about any of them, make sure you talk to the
reviewer before attempting to answer them.

Review notes need to be cleared in the audit documentation and not in the actual
review note. This is because at the end of the audit, all review notes are removed
from the file. Thus, if the audit work is included in the review note, it will be lost.

For example, the field senior may leave a review note asking you to document the
entity staff with whom you spoke, and when you spoke with them. During
completion of your testing, you would document this in the audit documentation.
In the review note, you would write that you had updated the audit documentation
as asked.

When you clear a review note, you should put your initials and a short comment
on the work you have done to address the comment in the review note. This
allows the reviewer to see quickly what additional work you have done without
re-reviewing all of the audit documentation.

You must clear all review notes on your work prior to the issuing of the audit
report. These could be from your field senior, audit manager, or audit engagement
partner.

You should never delete a review note raised by someone else unless you have
been specifically asked to do so. Reviewers will delete a review note once they
are satisfied that it has been addressed appropriately.

For more information on Review note template and Excel review notes, refer to Performance
SupportWorking with .

Review Note Illustration- Template

Review Note IllustrationExcel


Review Note IllustrationExcel

WHAT DOES IT MEAN TO SAFEGUARD MY AUDIT DOCUMENTATION?


As audit documentation is the evidence of your audit testing to address the risks identified,
you need to ensure that it is not lost or compromised.
Listed below are some basic safeguarding measures:
All of your audit documentation must be backed up at the end of each day to ensure that,
if anything should happen to your laptop, or if you are unexpectedly unable to come
into work the next day, your progress to-date will not be lost.
Your audit documentation may be backed up with the entire file byyour field senior, or
you can transfer your filesto a USB stick. However, make sure that you do not keep
your USB stick and laptop in the same place. If one goes missing, then the backup
will be missing as well!
If using a USB stick to transfer/backup information, make sure that it is password
protected. This way, if anything is on the USB stick when you transfer information,
or if the USB stick is lost, no one other than yourself can access this information.
Never leave your laptop unattended without locking it up first; this includes both
physically locking down the equipment and electronically locking the screen. You
must follow the firms security policies at all times; ask your field senior if you are
unsure as to what they are.
Do not leave your working papers or entity documents visible when you leave the audit
room (e.g., when going for lunch). Entity staff could come into the audit room and
catch sight of some confidential information, such as the entitys payroll report.

Useful to Independent Auditor


Audit documentation must contain sufficient information to enable an experienced auditor,
having no previous connection with the engagement:
a to understand the nature, timing, extent, and results of the procedures
b

performed, evidence obtained, and conclusions reached; and


to determine who performed the work and the date such work was
completed as well as the person who reviewed the work and the date of
such review.

Other Requirements
i
ii

Audit documentation provides evidence that the audit complies with the ISAs.
It is unnecessary for the auditor to document separately (as in a checklist, for
example) compliance with matters for which compliance is demonstrated by
documents included within the audit file.

For example:
The existence of an adequately documented audit plan demonstrates that the auditor

has planned the audit.


The existence of a signed engagement letter in the audit file demonstrates that the
auditor has agreed the terms of the audit engagement with management or, where

appropriate, those charged with governance.


An auditors report containing an appropriately qualified opinion on the financial
statements demonstrates that the auditor has complied with the requirement to express
a qualified opinion under the circumstances specified in the ISAs.

Matters arising after the date of auditors report


If, in exceptional circumstances, the auditor performs new or additional audit procedures or
draws new conclusions after the date of the auditors report, the auditor shall document:
The circumstances encountered;
The new or additional audit procedures performed, audit evidence obtained, and

conclusions reached, and their effect on the auditors report; and


When and by whom the resulting changes to audit documentation were made and
reviewed.

Departure from a relevant requirement

If the auditor judges it necessary to depart from a relevant requirement in an ISA, the auditor
shall document how the alternative audit procedures performed achieve the aim of that
requirement, and the reasons for the departure.

Assembly of Final Audit File


i

The auditor shall assemble the audit documentation in an audit file and complete the
administrative process of assembling the final audit file on a timely basis after the

ii

date of the auditors report.


An appropriate time limit within which to complete the assembly of the final audit

iii

file is ordinarily not more than 60 days after the date of the auditors report.
The completion of the assembly of the final audit file after the date of the auditors
report is an administrative process that does not involve the performance of new audit

iv

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.

Examples of such changes include:

Deleting or discarding superseded documentation.


Sorting, collating and cross-referencing working papers.
Signing off on completion checklists 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

auditors 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

vi

period.
The retention period for audit engagements ordinarily is not shorter than five years

vii

from the date of the auditors report, or, if later, the date of the group auditors report.
In circumstances where the auditor 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:
The specific reasons for making them; and
When and by whom they were made and reviewed.

Application of this Guideline


This guideline shall apply in the audit of any type of entity.

The auditor shall also consider the documentation requirements of other laws, regulations
and standards.

Technical standards on Audit Documentation


1. SA230 on Audit documentation issued by The Institute of Chartered Accountants of
India (ICAI)
The auditor should document matters which are important in providing evidence that the
audit was carried out in accordance with the generally accepted auditing standards in India.
The Standard also touches upon the Timely Preparation of Audit Documentation;
Documentation of the Audit
Procedures Performed and Audit Evidence Obtained and Assembly of the Final Audit File
The revised standard is Effective for audits of financial statements for periods beginning on
or after April 1, 2009)
2. AAS 3 on Audit Documentation issued by PCAOB- Public Company Accounting
Oversight Board
Mandated by the U.S. Sarbanes-Oxley Act of 2002, the standard states that the board must
establish audit standards that require registered public accounting firms to prepare and
maintain, for at least seven years, audit documentation that supports the conclusions they
reached in the external auditor's reports. The standard, which supersedes the American
Institute of Certified Public
Accountants' (AICPA's) Statement on Auditing Standard (SAS) No. 96 on audit
documentation, is effective for audits of financial statements of companies with fiscal years
ending on or after Nov. 15,2004
Among other provisions, the standard says:

Audit documentation must contain sufficient information to enable an


experienced auditor, having no previous connection with the engagement, to

understand the work that was performed and the conclusions reached.
After the report release date, auditors will have 45 days to assemble a complete
and final set of audit documentation.

Changes to the documentation after the audit completion date must be made

without deleting or discarding the original documents.


Audit evidence should be documented at the time the procedures are performed,

and oral explanation should not be the primary source of evidence.


Audit documentation supporting the work performed by other auditors,
including auditors associated with other offices of the firm, affiliated firms, or
non-affiliated firms, must be retained by, or be accessible to, the office issuing

the auditor's report.


If the principal auditor decides not to assume responsibility for the work of other
auditors, he or she should indicate the division of responsibility between the
principal auditor and other auditors in expressing an opinion on the consolidated
financial statements.

3. ISA 230 on Audit Documentation issued by International Auditing and Assurance


Standards Board (IAASB)
The main requirements in ISA 230 are as follows:
It places an emphasis on the timely preparation of audit documentation necessary to provide
a sufficient and appropriate record of the basis for the auditors report, and evidence that the
audit was carried out in accordance with ISAs and applicable legal and regulatory
requirements.
Establishes a new requirement that the auditor prepare the audit documentation so as to
enable an experienced auditor, having no previous connection with the audit, to understand
the audit work performed, the results and audit evidence obtained, and the significant matters
identified and conclusions reached thereon. It also defines the meaning of an experienced
auditor. The previous ISA only suggested that the auditor may find it useful to consider what
would be necessary to provide another auditor, having no previous experience with the audit,
with an understanding of the work performed and the basis for the main decisions taken.
Establishes a new requirement that, if in exceptional circumstances the auditor judges it
necessary to depart from relevant ISA requirements, the auditor document how the
alternative audit procedures performed meets the objective of the audit and, if not otherwise
clear, the reasons for the departure.

Establishes a new requirement that the auditor complete the assembly of the final audit file
on a timely basis after the date of the auditors report, and provides guidance indicating that
an appropriate time limit for this would ordinarily be 60 days after the date of the auditors
report. The revised ISA also resulted in the establishment of a new requirement in
International Standard on Quality Control (ISQC) 1, Quality Control for Firms that Perform
Audits and Reviews of Historical Financial Information, and Other Assurance and Related
Services Engagements, for firms to set up policies and procedures for the timely completion
of the assembly of the final engagement files.
Establishes a new requirement that the auditor not delete or discard audit documentation
after the final audit file has been assembled, unless the retention period for the audit
documentation has elapsed. The revised ISA also resulted in expanded guidance in ISQC 1
on the retention of engagement documentation. This guidance indicates that the retention
period for audits ordinarily is no shorter than five years from the date of the auditors report,
or, if later, the date of the group auditors report.
The standard is effective for audits of financial periods beginning on or after June 15,
2006.

Compilation of Data Collected


Form and Content of Documentation
The form and content of audit documentation should be designed to meet the
circumstances of the particular audit. The information contained in audit documentation
constitutes the principal record of the work that the auditors have performed in accordance
with standards and the conclusions that the auditors have reached. The quantity, type, and
content of audit documentation are a matter of the auditors professional judgment. The Audit
documentation therefore is not restricted to being only on papers, but can also be on
electronic media
Generally the factors that determine the form and content of documentations for a particular
engagement are:
a)
b)
c)
d)
e)
f)
g)
h)

The nature of the engagement


The nature of the business activity of the client
The status of the client
Reporting format
Relevant legislations applicable to the client
Records maintained by the client
Internal controls in operation
Quality of audit assistants engaged in the particular assignment and the need to
direct and supervise their work

Permanent and Current Audit files

In the case of recurring audits, some working paper files may be classified as
permanent audit files, which are updated currently with information of continuing importance
to succeeding audits. In contrast current audit files contain information relating primarily to
the audit of a single period.
A) A permanent audit file normally includes:
1. Copy of initial appointment letter if the engagement is of recurring nature
2. Record of communication with the retiring auditor, if any, before acceptance
of the appointment as auditor
3. NOC from previous auditor
4. Information concerning the legal and organisational structure of the entity.
In the case of a company, this includes the Memorandum and Articles of Association.
In the case of a statutory corporation, this includes the Act and Regulations under which the
corporation functions .i.e.
i.
ii.
iii.

In case of partnerships- Partnership deed


In case of trusts- Trust deed
In case of societies- Certificate of registration/ Rules and Bye-laws.
5. Organisational structure of the client
6. List of governing body including Name, Address and contact details. For
Instance, the List of Directors in case of a company, List of partners in a
partnership and list of Trustees in a Trust.
7. Extracts or copies of important legal documents, agreements and minutes
relevant to the audit.
8. A record of the study and evaluation of the internal controls related to the
accounting system. This might be in the form of narrative descriptions,
questionnaires or flow charts, or some combination thereof.
9. Copies of audited financial statements for previous years
10. Analysis of significant ratios and trends
11. Copies of management letters issued by the auditor, if any.
12. Notes regarding significant accounting policies.
13. Significant audit observations of earlier years.
14. Assessment of risks and risk management
15. Major policies related to Purchases and Sales
16. Details of sister concerns
17. Details of Bankers, Registrars, Lawyers etc
18. Systems and Data Security policies
19. Business Continuity Plans

B) A current file normally includes


a) Correspondence relating to acceptance of annual reappointment.
b) Extracts of important matters in the minutes of Board Meetings and General
Meetings, as are relevant to the audit.
c) Evidence of the planning process of the audit and audit programme
d) Analysis of transactions and balances.
e) A record of the nature, timing and extent of auditing procedures performed, and the results
of such procedures
f) Evidence that the work performed by assistants was supervised and reviewed.
g) Copies of communications with other auditors, experts and other third parties.
h) Copies of letters or notes concerning audit matters communicated to or discussed with the
client, including the terms of the engagement and material weaknesses in relevant internal
controls.
i) Letters of representation or confirmation received from the client.
j) Conclusions reached by the auditor concerning significant aspects of the audit, including
the manner in which exceptions and unusual matters, if any, disclosed by the auditors
procedures were resolved or treated.
k) Copies of the financial information being reported on and the related audit reports.
l) Audit review points and highlight.
m) Major weakness in Internal Control

Retention of working papers/ documents


Period of retention
The auditor should retain the working papers for a period of time sufficient to meet the needs
of his practice and satisfy any pertinent legal or professional requirements of record
retention.

Ownership and custody


Working papers are the property of the auditor. The auditor may, at his discretion, make
portions of or extracts from his working papers available to his client.
The auditor should adopt reasonable procedures for custody and confidentiality of his
working papers
Written representations
SA580 on Written Representations deals with the auditors responsibility to obtain written
representations from management and, where appropriate, those charged with governance.

Guidelines for Auditors on documentation / working papers


General guidelines for the preparation of working papers are:
a. Clarity and Understanding - Working papers should be clear and
understandable without supplementary oral explanations.
b. Completeness and Accuracy . Work papers should be complete,
accurate, and support observations, testing, conclusions, and
recommendations. They should also show the nature and scope of the
work performed.
c. Pertinence Limit the Information in working papers to matters that
are important and necessary to support the objectives and scope
established for the assignment.
d. Logical Arrangement File the Working papers in a logical order.
e. Legibility and Neatness Be neat in your work. Working papers
should be legible and as neat as practical. Sloppy work papers may
lose their worth as evidence. Crowding and writing between lines
should be avoided by anticipating space needs and arranging the
work papers before writing.
f. Safety- Keep your work papers safe and retrievable.

Changes to Audit Documentation

The proposed standard would have required that any changes to the working papers after
completion of the engagement be documented without deleting or discarding the original
documents. Such documentation must indicate the date the information was added, by whom
it was added, and the reason for adding it.
One commenter recommended that the Board provide examples of auditing procedures that
should be performed before the report release date and procedures that may be performed
after the report release date. Some commenters also requested clarification about the
treatment of changes to documentation that occurred after the completion of the engagement

but before the report release date. Many commenters recommended that the Board more
specifically describe post-issuance procedures. The Board generally agreed with these
comments.
The final standard includes two important dates for the preparation of audit documentation:
(1) the report release date and (2) the documentation completion date.

Prior to the report release date, the auditor must have completed all necessary auditing
procedures, including clearing review notes and providing support for all final
conclusions. In addition, the auditor must have obtained sufficient evidence to support
the representations in the auditor's reports before the report release date.

After the report release date and prior to the documentation completion date, the
auditor has 45 calendar days in which to assemble the documentation.

During the audit, audit documentation may be superseded for various reasons. Often, during
the review process, reviewers annotate the documentation with clarifications, questions, and
edits. The completion process often involves revising the documentation electronically and
generating a new copy. The SEC's final rule on record retention, Retention of Records
Relevant to Audits and Reviews,

5/

explains that the SEC rule does not require that the

following documents generally need to be retained: superseded drafts of memoranda,


financial statements or regulatory filings; notes on superseded drafts of memoranda, financial
statements or regulatory filings that reflect incomplete or preliminary thinking; previous
copies of workpapers that have been corrected for typographical errors or errors due to
training of new employees; and duplicates of documents. This standard also does not require
auditors to retain such documents as a general matter.
Any documents, however, that reflect information that is either inconsistent with or
contradictory to the conclusions contained in the final working papers may not be
discarded. Any documents added must indicate the date they were added, the name of the
person who prepared them, and the reason for adding them.
If the auditor obtains and documents evidence after the report release date, the auditor should
refer to the interim auditing standards, AU sec. 390, Consideration of Omitted Procedures
After the Report Date and AU sec. 561, Subsequent Discovery of Facts Existing at the Date

of the Auditor's Report. Auditors should not discard any previously existing documentation in
connection with obtaining and documenting evidence after the report release date.
The auditor may perform certain procedures subsequent to the report release date. For
example, pursuant to AU sec. 711, Filings Under Federal Securities Statutes, auditors are
required to perform certain procedures up to the effective date of a registration statement. The
auditor should identify and document any additions to audit documentation as a result of
these procedures. No audit documentation should be discarded after the documentation
completion date, even if it is superseded in connection with any procedures performed,
including those performed pursuant to AU sec. 711.
Additions to the working papers may take the form of memoranda that explain the work
performed, evidence obtained, and conclusions reached. Documentation added to the working
papers must indicate the date the information was added, the name of the person adding it,
and the reason for adding it. All previous working papers must remain intact and not be
discarded.
Documentation added to the working papers well after completion of the audit or other
engagement is likely to be of a lesser quality than that produced contemporaneously when the
procedures were performed. It is very difficult to reconstruct activities months, and perhaps
years, after the work was actually performed. The turnover of both firm and company staff
can cause difficulty in reconstructing conversations, meetings, data, or other evidence. Also,
with the passage of time memories fade. Oral explanation can help confirm that procedures
were performed during an audit, but oral explanation alone does not constitute persuasive
other evidence. The primary source of evidence should be documented at the time the
procedures are performed, and oral explanation should not be the primary source of
evidence. Furthermore, any oral explanation should not contradict the documented evidence,
and appropriate consideration should be given to the credibility of the individual providing
the oral explanation.
Multi-Location Audits and Using the Work of Other Auditors

The proposed standard would have required the principal auditor to maintain specific audit
documentation when he or she decided not to make reference to the work of another auditor.

The Board also proposed an amendment to AU sec. 543 concurrently with the proposed audit
documentation standard. The proposed amendment would have required the principal auditor
to review the documentation of the other auditor to the same extent and in the same manner
that the audit work of all those who participated in the engagement is reviewed.
Commenters expressed concerns that these proposals could present conflicts with certain
non-U.S. laws. Those commenters also expressed concern about the costs associated with the
requirement for the other auditor to ship their audit documentation to the principal auditor. In
addition, the commenters also objected to the requirement that principal auditors review the
work of other auditors as if they were the principal auditor's staff.
Audit Documentation Must be Accessible to the Office Issuing the Auditor's
Report

After considering these comments, the Board decided that it could achieve one of the
objectives of the proposed standard (that is, to require that the issuing office have access to
those working papers on which it placed reliance) without requiring that the working papers
be shipped to the issuing office. Further, given the potential difficulties of shipping audit
documentation from various non-U.S. locations, the Board decided to modify the proposed
standard to require that audit documentation either be retained by or be accessible to the
issuing office.
In addition, instead of requiring that all of the working papers be shipped to the issuing
office, the Board decided to require that the issuing office obtain, review, and retain certain
summary documentation. Thus, the public accounting firm issuing an audit report on
consolidated financial statements of a multinational company may not release that report
without the documentation described in paragraph 19 of the standard.
The auditor must obtain and review and retain, prior to the report release date,
documentation described in paragraph 19 of the standard, in connection with work performed
by other offices of the public accounting firm or other auditors, including affiliated or nonaffiliated firms, that participated in the audit. For example, an auditor that uses the work of
another of its offices or other affiliated or non-affiliated public accounting firms to audit a
subsidiary that is material to a company's consolidated financial statements must obtain the
documentation described in paragraph 19 of the standard, prior to the report release date. On
the other hand, an auditor that uses the work of another of its offices or other affiliated or

non-affiliated firms, to perform selected procedures, such as observing the physical


inventories of a company, may not be required to obtain the documentation specified in
paragraph 19 of the standard. However, this does not reduce the need for the auditor to obtain
equivalent documentation prepared by the other auditor when those instances described in
paragraph 19 of the standard are applicable.

Conclusion
Significance of Audit Documentation
The auditor must prepare audit documentation in connection with each engagement in
sufficient detail to provide a clear understanding of the work performed (including the nature,
timing, extent, and results of audit procedures performed), the audit evidence obtained and its
source, and the conclusions reached.
The significance of Audit documentation can be explained as follows:
Provides the principal support for the representation in the auditor's report that the auditor
performed the audit in accordance with generally accepted auditing standards.
Provides the principal support for the opinion expressed regarding the financial
information or the assertion to the effect that an opinion cannot be expressed.
Assists the audit team to plan and perform the audit;
Self-Defence in a Court of Law: Onus in a Court proceeding lies on the auditor to prove
that he was not professionally negligent in the performance of his duties
Self-defence in case Consumer Protection Act, 1986 is invoked.
Audit evidence in case of Review by FRRB- Financial Reporting Review Board-The
FRRB reviews the general-purpose financial statements either suo motto or on a
reference made to it by any regulatory body like, Reserve Bank of India, Securities and
Exchange Board of India, Insurance Regulatory and Development Authority, Department
of Company Affairs, etc. The FRRB also reviews the general-purpose financial
statements of enterprises relating to which serious accounting irregularities in the
general-purpose financial statements have been highlighted by the media reports.
To fulfil statutory requirements under Chartered Accountants Act, 1949

To fulfil requirements of Peer Review wherein working papers will also be reviewed in
order to establish whether the attestation work has been carried out as per norms of
Technical, Ethical and Professional Standards
To fulfil requirements of Quality Review-[Chapter VII A of Chartered Accountants Act
1949 Sections 28A to Sections 28D] Assists auditors who are new to an engagement and
review the prior year's documentation to understand the work performed as an aid in
planning and performing the current engagement;
Assists members of the audit team responsible for supervision to direct and supervise the
audit work, and to review the quality of work performed, in accordance with SA220
Quality Control for Audit Work;
Powers and duties of auditors- Companies Bill 2009 [clause 126] and punishment for
contravention [Clause 130] where an auditor contravenes any provisions with regard to his
duties and functions/ renders services that he is not allowed under the Bill / signing the audit
report, then he will be punishable with fine which is not less than Rs.25, 000 but may extend
to Rs.5 lakhs. Where the auditor wilfully contravenes these provisions, then he will be
punishable with imprisonment for a term which may extend to one year or with fine not less
than Rupees One Lakh but may extend to Rupees Twenty Five lakh or with both. Where
the auditor has been so convicted, he shall be liable to refund the remuneration received by
him to the company and also pay for damages for losses resulting from any incorrect or
misleading statements in his audit report
Demonstrates the accountability of the audit team for its work by documenting the
procedures performed, the audit evidence examined, and the conclusions reached;
Retains a record of matters of continuing significance to future audits of the same entity;
Assists quality control reviewers (for example, internal inspectors) who review
documentation to understand how the engagement team reached significant conclusions
and whether there is adequate evidential support for those conclusions;
Appropriate documentation contributes to the quality of an audit
Documentation fulfils the need to document oral discussions of significant matters and
communicate to those charged with governance, as discussed in, SA260 Communication
with those Charged with Governance.

Appendix

Bibliography
Websites
1.
2.
3.
4.
5.
6.

www.wikipedia.com
www.thehindubusinessline.com
www.ehow.com
www.icisa.cag.gov.in
www.pcaobus.org
www.caaa.in

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