CHAPTER 21

AUDIT
DOCUMENTATION
 PSA 230 (Clarified), “Audit
Documentation” establishes standards
and provides guidance regarding
audit documentation in the context of
the audit of financial statements.
 The standard on documentation
requires that the auditor should
prepare on a timely basis, audit
documentation that provides:
a. A sufficient and appropriate
record of the basis for the auditor’s
report; and
b. Evidence that the audit was
performed in accordance with PSAs
and applicable legal and regulatory
“Audit Documentation” means 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 File” means one or more folders or

other storage media, in physical or electronic
forms.
“Experienced auditor” means an individual
who has practical audit experience, and a
reasonable understanding of:
i. Audit process
ii. PSAs and applicable legal and
regulatory requirements
iii. The business environment in which the
entity operates
iv. Auditing and financial reporting issues
relevant to the entity’s industry
NATURE OF AUDIT DOCUMENTATION

Audit working papers are the

records kept by the auditor of the
procedures applied, the test
performed, the information obtained
and the conclusions reached in the
engagement.
OBJECTIVES OF AUFDIT
DOCUMENTATION
A. Assisting the engagement team to plan and perform
the audit
B. Assisting members of the engagement team
responsible for supervision to direct and supervise the
audit work, and to discharge their review
responsibilities in accordance with PSA 220.
C. Enabling the engagement team to be accountable
for its work.
D. Retaining a record of matters of continuing
significance to future audits.
OBJECTIVES OF AUFDIT
DOCUMENTATION

E. Enabling the conduct of quality control reviews

and inspections in accordance with PSQC 1.
F. Enabling the conduct of external inspections in
accordance with applicable legal, regulatory or
other requirements.
 FORM, CONTENT AND EXTENT
The auditor shall prepare audit documentation that is
sufficient to enable an experienced auditor, having no
previous connections with the audit, to understand:
a. The nature, timing, and extent of the audit
procedures performed to comply with the PSAs and
applicable legal and regulatory requirements.
b. The results of the client procedures, performed,
and the audit evidence obtained; and
FORM, CONTENT AND EXTENT

c. Significant matters arising during the

audit, the conclusions reached thereon,
and significant professional judgments
made in reaching those conclusions.
 The form, content, and extent of the audit
documentation depend on factors such as:
• The size and complexity of the entity.
• The nature of the audit procedures to be
performed.
• The identified risk of material misstatement.
• The significance of the audit evidence
obtained.
• The nature and extent of exceptions 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 auditor methodology and tools used
 In documenting the nature, timing,
and extent of audit procedures performed,
the auditor shall record:
a. the identifying characteristics of the
specific items or matters 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
 TYPES OF WORKING PAPERS

1. Audit administrative working papers

2. Working trial balance and lead schedule
3. Supporting schedules and analysis
4. Adjusting and reclassifying entries
5. Audit memoranda and documentation of
corroborating information
1. Audit administrative working papers
These are working papers designed to aid the auditors in
the planning and administration of engagements.
Purpose of audit program include:
1. It serves as a procedural guide during the course of the
audit.
2. It serves as a basis in dividing the audit work among staff
members
3. It serves as a basis of reviewing progress audit work
4. It enables the auditor to ensure that the program designed
to substantiate amounts appearing in the accounts and
related notes have covered all material aspects thereof.
 A well- designed audit program will provide
evidence of:
a. Proper planning including assurance that
important steps were not overlooked
b. Coordination and monitoring the audit work
c. Proper supervision and review of the audit
d.Completion of all audit steps
e. Compliance with the standards in performing
an audit
 Types of Audit Program

1. STANDARD ALL-PUPROSE AUDIT PROGRAM

lists standards practices applicable to almost every
engagement

2. TAILOR-MADE AUDIT PROGRAM

list the procedures to be followed on a specific audit
engagement
Types of Audit Program

3. MODIFIED STANDARD FORM AUDIT PROGRAM

a preprinted program that outlines the usual audit
procedures common to most business and provides space for
an auditor to indicate other specific procedures applicable to
the business under examination
2. Working Trial Balance and Lead Schedule
WORKING TRIAL BALANCE
This is a list of the accounts in the client’s general ledger
with columns that, as a minimum include unadjusted amounts
directly from the client’s accounting records, proposed adjusting
entries and adjusted (audited) amounts.

LEAD OR TOP SCHEDULE

This is a working paper that shows the groupings of related
account balances.
3. Supporting Schedules and Analyses
SUPPORTING SCHEDULES
These are the detailed schedules prepared by
auditors in support of specific amounts on the financial
statements.

ACCOUNTS ANALYSIS
This working paper shows the activity during the
period in a particular statement of financial position
account.
4. Summary of Adjusting and reclassifying
Entries
ADJUSTING ENTRIES
are corrections of material errors in the accounting
records discovered by the auditor.

RECLASSIFYING ENTRIES
are made in the statements to present accounting
information properly, even when the general ledger
balances are correct.
5. Audit Notes or Memoranda and
Documentation of corroborating Information
AUDIT NOTES
This is the working paper used to note items of work to be
done that cannot be completed by following the usual
sequence of audit procedures.

OUTSIDE DOCUMENTATION
Much of the content of the working paper consist of the
outside documentation gathered by the auditors.
RELATIONSHIP OF WORKING PAPERS
TO FINANCIAL STATEMENTS

WORKING PAPER FILES

Each CPA firm establishes its own approach
to preparing and organizing working papers and
the beginning auditor must adopt his or her
firm’s approach.
Financial
Statement and
audit report
Working Trial Balance
Adjusting/ Reclassifying
Journal Entries
Client Representation letter
Operations
Assets
Liabilities and Equity

Current File (Workpapers Analytical Procedures

applicable exclusively to Test of Transaction
current period under audit) Internal Control Structure
General Info
Audit Program
CURRENT AUDIT FILE

The current year working paper file is designed to support

the assertion embodied in the financial statement.
This file contains all papers accumulated during the
current year’s examination. The working papers normally
included in the current file are:
1. Original draft of the report.
a. The financial statement
b. draft of the auditor’s report
 c. draft of income tax return
2. Audit plan and programs
3. Working trial balance
4. Adjusting and reclassifying journal entries
5. Lead and supporting schedules
6. General information, such as
a. abstracts or copies of minutes of the board of director’s
meetings
b. Abstracts of contracts or agreements not included in the
permanent files
c. Notes on discussions with the client
d. Notes about impressions of the form of the client’s office and
plant
Permanent File
Working papers in permanent files contain information of
continuing interest to the auditor.
The permanent files typically include the following:
1. Excerpts of the corporate charter or articles of co-partnership/
by-laws
2. Analysis of business and industry
3. Copies of contracts (that affect future periods)
4. Chart of accounts and accounting system and related controls
from prior examination
5. Flowcharts and notes on the accounting system and related
controls from prior examination
6. Continuing analysis of fixed assets
7. Organization charts and excerpts from job manuals
8. Terms of capital stock and bond issues
9. Result of analytical procedures from previous years’ audit
10. Excerpts from minutes of meetings
11. Labor-management agreement
12. Information concerning related parties
13. Description of complex business transactions and/or unique
accounting treatments
14. Copies of pension plans, stock option plans, and employee
bonus and profit-sharing plans
 Other files may also be maintained such as:
1. Tax Files
These files contain information relevant to a client’s current
and past income tax and other business obligations.

2. Correspondence File
This file contains all correspondence or letters to, from or in
behalf of a client.
 Mechanics of Working Paper
Preparation
Good working paper should possess or show the following quantities:
1. Every Working Paper should be complete in itself and should not require
subsequent or additional oral explanation
2. Working Paper should be factual, accurate, and free from clerical
and/or computational errors.
3. Working papers should clearly indicate the nature and extent of audit
work performed.
4. Working papers should be concise and limited only to essentials.
5. Working Papers should be prepared in a neat and orderly manner to
facilitate review of work done.
Computer-Generated Working
Paper

Auditors use software when an adjustment is

entered on computer-based working paper, it
appears instantly on the appropriate lead
schedules, the adjustment schedule, and the
working trial balance.
The necessary cross-references are
automatically entered on each schedule.
 Ownership and Custody of Working
Paper
The Philippine Accountancy Act of 2004, Section 29 specifies the
legal provision on ownership of audit working papers.
“All working papers, schedules, and memoranda made by a
certified public accountant in public practices and his staff in the
course of an examination, including those prepared and submitted by
the client, incident to or in the course of examination, by such certified
public accountant to a client shall be treated confidential and
privilege and remain the property of such certified public accountant
in the absence of a written agreement between the certified public
accountant and the client, to the contrary, unless such documents are
required to be produced through a subpoena issued by any court,
tribunal, or governmental regulatory or administrative body.”
Confidentiality of Working Papers
PSA 230 requires the auditor to adopt
appropriate procedures for maintaining the
confidentiality and safe custody of the working
papers and for retaining them for a period
sufficient to meet the needs of the practices
and in accordance with legal and professional
requirements of record retention.
CHAPTER 22
AUDIT EVIDENCE
EVALUATION
Every audit is unique, but the approach to all audits
is the same

The STRENGTH of an audit depends on the

relevance and reliability of the evidence gathered.

RELEVANCE determined by the assertion tested; that some of the

evidence will be relevant to the assertion being tested.
RELIABILITY relates to the quality of evidencegathered and is affected by
the independence of the evidence from the client or by the quality of the
client’s overall control structure.
 After the planned audit prcedures have been performed, an
EVALUATION will take place.This include a review of the audit
documentation and discussion with the engagement team and any
changes to the audit plans as a result of the procedures performed.

The auditor should be satisfied that sufficient appropriate audit

evidence has been obtained to support the conclusions reached
for the auditors report to be issued.

Auditors should evaluate with professional skepticism the

evidence obtained in relation to their accumulated knowledge of
the client and the industries in which it operates.
 “EVALUATING THE SUFFICIENCY AND APPROPRIATENESS OF AUDIT
EVIDENCE”
An audit of financial statement is a cumulative and iterative process.
As the auditors performs planned audit procedures, the audit evidence
obtained may cause the auditor to modify the nature, timing, or extent of other
planned audit procedures.
Information may come to the auditor’s attention that differs significantly from
the information on which the risk assessment was based.
For example:
 The extent of misstatements that the auditor detects by performing substantive
procedure may alter the auditor’s judgement about the risk assessment and may
indicate a material weakness in internal control.
 Auditor may become aware of discrepancies in accounting records, or
conflicting or missing evidence.
 Analytical procedures performed at the overall review stage of the audit may
indicate a previously unrecognized risk of material misstatement.
 The auditor CANNOT ASSUME that
an instance of fraud or error is an
isolated occurance.
Auditor’s judgement as to what constitutes sufficient and appropriate audit evidence is
influenced by such factors as the following:

 Significance of potential misstatement in the assertion and the likelihood of

its having a material effect, individually or aggregated with other potential
misstatements on the financial statements.
 Effectiveness of management’s responses and controls to address the risks.
 Experience gained during previous audits with respect to si ilar potential
misstatements.
 Results of audit procedures performed, including whether such audit
procedures identified specific instances of fraud or error.
 Sources and reliability of available information.
 Persuasiveness of thr audit evidence.
 Understanding of the entity and its environment, including the entity’s internal
control.
Evaluation of the audit evidence obtained would address the following
matters.
1.Materiality
 Whether it is necessary to revise performance materiality; and
 Whether the nature, timing, or extent of the further audit procedures remain appropriate.
1. Risks
2. Misstatements
 The nature or circumstances of identified misstatements indicate the other misstatements may exist
that, when aggregated with known misstatements, could exceed performance materiality; or
 The aggregate of identified and uncorrected misstatements comes close to or exceeds
performance materiality
1. Fraud
2. Evidence
3. Analytical Procedures
 Corroborate the audit findings; or
 Identify previously unrecognized risks of materialmisstatement.
FACTORS TO CONSIDER
a.Materiality of Misstatements
b.Management responses
c.Quality of Information
d.Persuasiveness
e.Previous Experience
f. Results of performed audit procedures
g.understanding the entity
Final Analytical Procedures
Auditing standards require the use of analytical procedures in both planning phase and final review
phase of the audit to assist in identifying account relationships that are unusual.

Identify a previously unrecognized risk of material

misstatement;
Ensure that the conclusions formed during the audit
on individual components or elements of the
financial statements can be corroborated; and
Assist in arriving at the overall conclusion as to the
reasonableness of the financial statements
 Documentation
The final step in the evaluation process is to record all the significant
findings or issues in an engagement conpletion document.

This document may include all information necessary to understand the

significant finding or issues, as well as cross references, as appropriate
to other available supporting audit documentation.

This would also include conclusion about information the auditor has
identified relating to significant matters that are inconsistentnwith or
contradict the auditor’s final conclusions.
PSA 260 (Clarified) “Communication with those Charged with
Governance” requires that the auditor shall communicate on timely
basis with those charged with governance the responsibilities of the
auditor in relation to the financial statement audit, including that:

a.The auditor is responsible for forming and expressing an opinion of

the financiak statements that have been prepared by management
with the oversight of those charged with governance; and
b.The audit of financial statements does not relieve management or
those charged with governance of their responsibilities.
Thank You!