Audit documentation and working papers (ISA 230)

Three years after signing an audit report, a firm receives a letter from the regulator asking for its evidence on the valuation of a client's investment property. The partner who signed has left and the senior who did the work is on leave. The firm can answer only if the file shows what was done, what was found and what was concluded, clearly enough for a stranger to follow. Audit documentation is the audit's memory.

This topic covers what audit documentation is, why it matters, the requirements of International Standard on Auditing (ISA) 230, the form and content of the file, the permanent file and the current file, a model working paper, final assembly and later changes, computer-based working papers and the ownership, retention and confidentiality of the papers. It follows the topic on audit evidence and precedes sampling.

Key terms in plain English

Syllabus check

This topic is in syllabus area C, gathering evidence and audit report (25% of marks). It covers:

• the need to maintain and keep working papers and other documentation (ISA 230)
• records and working papers in the audit process
• the confidentiality of working papers

CAMA 2020 and audit documentation

The Companies and Allied Matters Act 2020 (CAMA 2020) is the company law of Nigeria. The sections below apply to this topic.

The rules in more depth

What audit documentation is

Audit documentation is the record of the audit procedures performed, the audit evidence obtained and the conclusions reached. It is also called audit working papers. The audit file is the one or more folders, on paper or electronic, holding the records for the whole engagement. The auditor's objective under ISA 230 is to prepare documentation that gives:

• a sufficient and appropriate record of the basis for the auditor's report; and
• evidence that the audit was planned and performed in line with the ISAs and the legal and regulatory requirements.

It must be prepared on a timely basis and be enough to enable an experienced auditor with no previous connection with the audit to understand:

1. the nature, timing and extent of the procedures performed;
2. the results of the procedures and the evidence obtained; and
3. significant matters arising and the conclusions reached on them.

The auditor must also document discussions of significant matters, how any inconsistencies with the final conclusion on significant matters were resolved, and the justification for any departure from a basic principle or relevant procedure in an ISA.

Why documentation is prepared

Timely, sufficient and appropriate documentation improves the quality of the audit and helps the review and evaluation of the evidence and the conclusions before the report is finalised. Papers made when the work is done are more accurate than those made later. Other purposes:

• helping the team plan and perform the audit;
• helping supervisors to direct and supervise the work;
• making team members accountable for their work;
• recording matters of continuing importance for future audits; and
• enabling an experienced auditor with no previous connection to do quality control reviews or inspections, for example by a regulator.

Form, content and extent

The file may be paper, electronic or other media. Its contents vary with the client and the audit, but normally include audit programmes, analyses, summaries of significant matters, confirmation and representation letters, checklists and correspondence. For continuing audits it is traditional to keep two files.

What every working paper shows

• the name of the client and the accounting date;
• a file reference;
• the name of the person who prepared it and the date;
• the name of any reviewer, the extent of the review and its date;
• a key to the audit ticks or other symbols used;
• a list of errors or omissions found; and
• a conclusion on the area.

A model working paper

Client: ABC Limited. Reference: TP 3.1. Subject: trade payables. Prepared by: DG, 13 April 20X4. Reviewed by: TR, 17 April 20X4. Year end: 31 March 20X4. Objective: to make sure trade payables are fairly stated. Work: select five supplier balances and reconcile the supplier statements to the payables ledger; vouch the reconciling items to source documents.

Note 1: vouched to a credit note; a timing difference; no adjustment. Note 2: an invoice from N Ltd was not recorded; an adjustment is needed: debit purchases ₦800 and credit trade payables ₦800. Conclusion: after the adjustment, trade payables are fairly stated.

Final assembly and later changes

The auditor must assemble the final file on a timely basis after the date of the report, usually within a period set by the firm and not later than 60 days. This usually excludes drafts of working papers or statements and notes that show incomplete thinking. After assembly the auditor must not delete or discard documentation before the end of the retention period.

If it becomes necessary to change or add to documentation after that, the auditor documents when and by whom it was done.

If after the date of the report the auditor has to perform new or additional procedures or reaches new conclusions, he documents the circumstances, the new procedures, evidence and conclusions and their effect on the report, and when and by whom the changes were made and who reviewed them.

Computer-based working papers

Audit software helps to prepare analysis schedules, particularly where the firm uses standard documents, lead schedules and draft financial statements, usually cross-referenced and updated automatically as the audit goes on. The advantages are neat, standard, readable documentation, fewer errors in processing adjustments, remote review without visiting the client, and large time savings.

The firm must keep the electronic file secure, with access controls, back-ups and a record of who changed what and when.

Ownership, custody and confidentiality

The auditor owns the audit documentation. The working papers are not part of the client's accounting records and do not belong to the client. The auditor decides how long to keep them, subject to a minimum retention period, under ISA 230, of five years from the date of the auditor's report, or of the group auditor's report if later. The auditor must keep the papers safe and confidential.

Information may be given to third parties only as the ethical rules allow, for example under a legal duty or with the client's consent, as the topic on confidentiality explains. A new auditor has no right to the previous auditor's working papers, which is why the incoming auditor asks the client for permission to talk to the outgoing auditor.

Worked examples

1. (a) Permanent file.
2. (b) Current file.
3. (c) Permanent file.
4. (d) Current file.

1. It does not show who did the work or when, or whether it was reviewed.
2. It does not show the conclusion reached, so the evidence cannot be defended.

1. The auditor documents the circumstances, the new procedures, the evidence and conclusions and the effect on the report.
2. He also records when and by whom the file was changed and who reviewed it.

1. The papers belong to the auditor, not the client.
2. The auditor may provide extracts at his discretion, mindful of confidentiality and the need to protect his own position.

How to score full marks

• Define documentation and give the ISA 230 test of the experienced stranger.
• Contrast the permanent file with the current file, with examples of each.
• List the items every working paper shows.
• State ownership, five-year retention and confidentiality.

Common mistakes in the exam

• Saying the working papers belong to the client.
• Placing this year's results on the permanent file.
• Forgetting reviewer and date details.
• Giving a retention period shorter than five years.

Quick revision

• Record of procedures, evidence and conclusions.
• Experienced stranger test.
• Permanent file and current file.
• Auditor owns the papers; five years minimum; confidential.

Practice questions

Questions 1 to 10 are multiple choice. Questions 11 to 13 are written. Try each before opening the answer.

Model answers

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