Documentation

pdf

School

Temple University *

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Course

2007

Subject

Accounting

Date

Nov 24, 2024

Type

pdf

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Uploaded by naikamit

Documentation Auditing Standards establish requirements to insure the adequacy and content of workpapers. In addition, firms will establish their own policies regarding the form and content of working papers. Working papers should be well organized, numbered, and cross referenced. Documentation is evidence of: ● Proper Planning ● Communication. ● The understanding of the client, its environment, and the business risks related to the industry in which the client operates. ● The auditor's determination of audit risk assessment procedures. ● Proof that the working papers were carefully reviewed in accordance with generally accepted auditing standards and firm quality control policies. ● Legal defense of the firm in lawsuits. The term documentation covers all contents of the audit files. A portion of the workpapers will be used as audit evidence. There is no greater frustration than knowing you have something, and you cannot find it. Indexing and cross-referencing the audit workpapers solve that problem. Tick Marks show the audit procedures applied to a document received from the client PBC. A bank reconciliation from the client becomes audit evidence once tick marks are applied and explained. Evidence Audit evidence is documentation accumulated to substantiate the conclusions and the audit opinion. Evidence can confirm or contradict an assertion. The following auditing standards cover audit documentation and audit evidence. ● AU-C 500 Evidence ● AU-C 501 Evidence – Specific Considerations for Selected Items (Inventory, Litigation Claims) ● AU-C 505 Confirmations Evidence must be both sufficient (quantity) and appropriate (quality). Compliance with this requirement is left to the auditor’s professional judgment. Sufficiency Sufficiency is a measure of quantity, not quality. The quantity of evidence is influenced by the assessed risk for the engagement, the specific audit area, and assertion the evidence is expected to support. As a rule of thumb, the greater the assessed risk, the greater the quantity of evidence required. Also, a large quantity of evidence will not substitute for inadequate quality, relevance, or reliability. Appropriateness (Relevant and Reliable) Appropriateness is the quality of the evidence collected. Appropriateness is determined in terms of the relevance and the reliability of the evidence. Relevance refers to the relationship or connection of the evidence to the assertion. There should be a direct and logical connection between the evidence and the assertion. You also must consider the audit

procedure. Are you looking to test for an overstatement or an understatement of an account balance? For an overstatement, we test the account balance. For an understatement, we look to subsequent disbursements or unpaid invoices. Reliability is determined by the source of the evidence. External such as confirmations or audit team-created documentation is considered more reliable. Original documents are more reliable than copies. Also, the auditor collected evidence is more reliable because of the auditor’s knowledge of how it was collected. (Inspection, Observation, Recalculations, Reperformance or Inquiry)

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