Audit Documentation

Charles B. Hall, CPA, CFE, Macc chall@mmmcpa.com

What is Audit Documentation?

Support for: Representation that a GAAS audit was performed Opinion that financials conform to GAAP

Communicating Clearly

Communicating Clearly

Ever looked at a workpaper and asked...

What is this?

Communicating Clearly

Only include what is necessary

Communicating Clearly

Excessive wording, numbers, etc. will only confuse

Communicating Clearly

Excessive documentation may also lead to litigation exposure

Purpose
Purpose of work paper To test the completeness assertion by performing a search for unrecorded liabilities

Conclusion
Conclusion completeness of payables is appropriate

No Purpose
If there is no purpose for the work paper, then ask: Do I need this work paper?

No Purpose
The purpose can refer to the appeasement of a particular audit risk; for example: Purpose - to address the completeness assertion in accounts payable - the risk is that payables are understated

Does work paper support audit plan?

Does Work Paper Support Audit Plan?

If no, then ask: Do I need this work paper? If yes, then add additional step to the audit program If no, then remove the work paper

GAAS Requirements

Unconditional Documentation Requirements

1. Provide clear understanding of work performed, evidence obtained and conclusions reached 2. Document how a departure from any presumptively mandatory GAAS requirement was justified and how alternative procedures were sufficient 3. Cannot delete or alter documentation for at least five years

Extent
Sufficient for an experienced auditor with no previous connection to the audit to understand: Nature, timing and extent of the procedures applied to comply with GAAS The results of the audit procedures The significant judgments made and conclusions reached on significant findings or issues

Documentation Requirements
1. Who performed the work and when the work was performed 2. Who reviewed the work and when Reviewer not required to sign off on every work paper Might be met by signing off a checklist or memo

Documentation Requirements
Identifying characteristics, such as invoice, part number, or location of information Abstracts or copies of entity records (when needed, e.g., debt agreements) Date the audit report was released

Documentation Requirements
Significant findings or issues Actions taken to address them Any additional evidence obtained Basis for final conclusion Discussions with others (such as management)

Significant Findings or Issues

Examples of Issues Selection, application, and consistency of accounting principles, including related disclosures Accounting for complex or unusual transactions Accounting estimates and uncertainties

Significant Findings or Issues

Results of audit procedures indicating: The financial information or disclosures could be materially misstated A need to revise the auditors previous assessment of the risks of material misstatement and the auditors responses to those risks

Significant Findings or Issues

Circumstances that cause significant difficulty in applying auditing procedures (for example, lack of confirmation responses) Findings that could result in a modification of the auditors report Material auditor-identified corrections of financial information

Lockdown of Audit Files

Audit files should be locked down within 60 days of the release date Use a tickler file to ensure that files are locked down Better yet, lock down the files on the day the financial statements are issued

Changes After 60 Days

Document additions or changes including: When and by whom (and whether changes were reviewed) Reasons for change

Retention Period
Files should be maintained for a minimum of five years from the release date Create system for appropriate removal of files after the retention period Dont retain files longer than necessary; can create litigation exposure

Work Papers
Engagement Letter Consultations with others (inside and outside the CPA firm) Risk assessment procedures Walkthroughs Planning analytics

Work Papers
Engagement team discussion Understanding of the entity and its environment Risk assessment Fraud considerations

Work Papers
Audit plan Audit strategy Oral confirmations If accounts receivable not confirmed how you overcame the presumption that receivables would be confirmed

Work Papers
Representation letter SAS 114 letter (or document oral communication) SAS 115 letter significant and material weaknesses Materiality

Work Papers
Adjusting journal entries (both passed and posted) Going concern Conclusion as to whether uncorrected misstatements cause the financial statements to be materially misstated

Engagement Letter
Objective and scope of the audit Responsibilities of the auditor and management

Statement that an unavoidable risk exists that some material misstatements may not be detected even though the audit is properly planned and performed
Identification of applicable reporting framework (e.g., GAAP)

Engagement Letter
Multi-year engagement letter

If the terms are not revised, that management has been reminded of the engagement terms
If the terms are revised, the new terms are added

Consultation
Nature and scope of the consultation
Conclusions reached Basis for conclusions

Work Papers
All reviews (in-charge, partner, quality control) should be performed prior to or concurrent with the opinion date Rendering an opinion without appropriate timely reviews may create legal exposure

What if I lose my work papers?

Dog Ate My Homework

A nonauthoritative technical practice aid, Considerations When Audit Documentation Has Been Destroyed by Fire, Flood, or Natural Disaster (TIS 8345.02), says that such destruction of audit documentation precludes the auditor from stating that the audit was performed in accordance with GAAS. It indicates the need to create new documentation to replace that destroyed if the auditor's report has not been issued. The practice aid suggests that, in most cases, it will be necessary to re-perform the audit procedures.

Practical Considerations

Removeaphobia

Afraid to Remove?
Move the work paper to a central File 13

Conclusion of audit delete file 13

Delete all review notes

Discard draft work papers

Questions
Email Charles Hall at chall@mmmcpa.com