UNIT 9: AUDIT DOCUMENTATION
Key unit competence: To be able to evaluate the form, content and
extent of audit documentation.
Introductory activity
KAYIJUKA has been recently appointed as the auditor of ITERAMBERERYACU
Ltd Company located in GATSIBO DISTRICT. The company is operating in
beverage business industry. On his arrival, he was received by the managing
director of the company. They had discussions and later proceeded with
auditing work. He was given various documents from the accountant,
manager, cashier and storekeeper. During his work of audit, the auditor wascollecting some documents that could help him to prepare his audit report.
Question
1. How do you call the documents gathered by the auditor during audit?
2. What do you think could be the purpose of gathering the documents?
9.1. Components of audit documentations
Learning activity 9.1
Observe carefully the pictures above and answer the following questions:
1. Which documents do you observe on the pictures?
2. In few words how do you call the documents observed?
9.1.1. Meaning and objectives of audit documentation
a) Meaning of audit documentation
Audit documentation is the principal record of auditing procedures applied,
evidence obtained, and conclusions reached by the auditor in the engagement.
Audit documentation is the written record of the basis for the auditor’s
conclusions that provides the support for the auditor’s representations, whetherthose representations are contained in the auditor’s report or otherwise.
Audit documentation refers to the records or documentation of procedures that
auditors performed, the audit evidence that they obtained and the conclusions
made by them based on the evidence obtained from the field. The quantity, type,
and content of audit documentation are matters of the auditor’s professionaljudgment.
b) Objectives of audit documentation
Before the auditor could make a conclusion on financial statements whether
those financial statements are free from material misstatement or they contain the
misstatement, the auditor needs to make sure that they have enough(sufficient
and appropriate) audit evidence to support his/her conclusions. Therefore, audit
documentation is important for the success of audit works. The following are theobjectives of audit documentation:
• It provides evidence of the auditor’s basis for a conclusion about the
achievement of the overall objective;
• It provides evidence that the audit was planned and performed in
accordance with ISAs and other legal and regulatory requirements;
• It assists the engagement team to plan and perform the audit;
• It assists team members responsible for supervision to direct, supervise
and review audit work;
• It enables the team to be accountable for its work;
• It allows a record of matters of continuing significance to be retained;
• It enables the conduct of quality control reviews and inspections (bothinternal and external).
Audit documentation is sometimes called audit working papers.
9.1.2. Audit working papers
a) Definition of audit working papers
Audit working papers are documents which contain all information gathered
from the company audited and show all evidences to help the auditor to prepare
the final report and to form his/her opinion. Working papers are records kept
by the auditor of the procedures applied, the tests performed, the informationobtained, and the pertinent conclusions reached in the engagement
Working papers are the record of various audit procedures performed, audit
evidence collected and obtained, allocation of work between audit team
members etc. Audit working papers are the documents and evidence that anauditor collects and retains with himself/herself during the audit work.
b) The form and contents of working papers
The form and content of working papers are affected by matters such as:
• The size and complexity of the entity;
• The nature of the audit procedures to be performed;
• The identified risks of material misstatement;
• The significance of the audit evidence obtained;
• The nature and extent of exceptions identified;• The audit methodology and tools used.
c) Features of good working papers
• They should be properly headed.
• They should indicate the period covered by them or when they were
collected or recorded.
• They should be as complete as possible so that they do not call for
further explanation.
• They should be sufficiently detailed.
• They should be kept safely as a safeguard from misuse or destruction.• Symbols used should be explained.
d) Advantages/benefits of collecting working papers
• They are used as a basis for planning the current year’s audit.
• They are used as a means of controlling the current year’s audit through
their review.
• They enable the auditor to form an opinion.
• They are used to assist in investigations in company’s financial affairs.
• These working papers can be used as evidence of work done in
particular if the auditor has been sued for negligence.
• They are collected as evidence of work done by each audit clerk whocan be questioned if any work was omitted.
e) How Audit working Papers are gathered
• By taking photocopies of the client’s statements.
• By taking notes relating to areas of weak internal control system,
material errors and frauds.
• By filing up evidence from third parties.
• Auditor’s own judgment which is put on record and filed.• Important documents from the company.
f) Ownership of working papers
Working papers are the property of the auditor. The auditor may, at his/her
discretion, make portions of or extracts from his/her working papers available
to his/her client. They should not, however, be a substitute for the client’saccounting records.
9.1.3. Audit files
The auditor maintains two audit files for each client. These two files are knownas permanent audit file and current audit file and they are explained as follows:
a) Permanent audit file
Permanent audit file is a file which containst all documents that are required by
the auditor as long as he/she remains the auditor of this particular company.
Permanent audit file is a file which contains informations of continuing importance
/ nature to the auditor i.e.that informations which the auditor will use beyondone financial period.
A permanent audit file contains information which is of continuous interest and
is relevant in future audits. In preparing this file, the auditor should bear in mindthe following points:
• The objective of the file is to maintain a permanent record of informationof permanent importance to the auditor.
• The file must be updated at each annual audit.
The documents kept in the parmanent file include:
• Statutory or legal documents like Memorandum of association and
Articles of association;
• Details relating to the nature of the business, its operations;
• Organization plan and chart showing the duties and authorities of
various officials of the company;
• Details of accounting systems and internal control in operation;
• Copies of important agreements and minutes of important meetings of
board of Directors;
• List of accounting books or records maintained by the company;• Copies of previous years financial statement.
b) Current audit file
Current audit file is that file which contains information which related primarly to
the set of accounts being audited i.e. It contains informations which will be used
by the auditor for the current year under audit only. A current audit file contains
information regarding audit conducted for the current period. This file containsdocuments in respect of one specific year.
The current file contains the following documents:
• A copy of the final accounts of the respective year.
• Completed internal control questionnaires.
• Audit programme
• Audit time table
• All relevant list e.g. list of fixed asset, a list of debtors, a list of creditors
etc.• Correspondence with the client in respect of the current audit.
9.1.4. Audit note book
a) Definition and purpose of audit note book
An audit notebook is a register kept by an audit team to record crucial/importantpoints observed during the audit.
The purpose of an audit notebook is to note down various points, which need
to be either clarified with the client or the chief auditor. Audit notebook is also
used for recording important points to be included in the Auditor’s Report. It isa complete record of doubts and their clarification.
b) Importance of Audit Note Book
• Audit notebook shall be taken as reliable evidence even by the Courtof law in case of dispute or if the auditor is charged with negligence.
• It is useful for drawing the audit program.
c) Advantages of audit notebook
• Audit note book enables the auditor to record important points, which
arise during the course of his/her audit; otherwise he/she might forgetthese points.
• An auditor can produce this book as a documentary evidence in a suitfiled against him/her for negligence or misfeasance.
• It facilitates the preparation of the audit report.
• If the assistant in charge is changed before the completion of a
particular work, it acts as a guide and makes the completion of balancework easier.
• It can help in making an assessment of the work of audit clerks.
• It provides a key to evaluate the efficiency of the audit staff.
d) Disadvantages of Audit NoteBook
• Very often, it creates misunderstanding between the client staff and the
audit staff.
• If it is not properly and carefully prepared, it cannot be used as evidence
against the auditor for negligence.
• Audit staff has to depend too much upon the client’s staff for itspreparation.
e) Contents of an audit notebook
• A list of books of accounts maitained by the client.
• The technical terms used in the business.
• The names of the principal officers, their powers, duties and
responsibilities.
• The points which require further explanations and clarification.
• The mistakes and errors discovered .
• The total or balance of certain books of accounts, bank reconciliation
statement.
• Accounting methods followed in the business.
• The points which have to be incorporated in the audit report.
• Any matters which require discussions with the senior or with the
auditor.• Date of commencement and completion of the audit.
Application activity 9.1
1. Define the following concepts:
a. Audit documentationb. Audit notebook
2. What are the types of audit files?
Skills lab activity 9
Under the guidance of a teacher, the students in their learning groups are
facilitated to design appropriate working papers showing all the requiredinformation as required per International Standards on Auditing.
End unit 9 assessment
1. Identify the objectives of audit documentation.
2. What is the definition and the purpose of audit notebook?
3. Differentiate Permanent audit file from Current audit file
4. Give the features of good audit working papers
5. Complete the following definitions:
a. …...documents which contain all information gathered from the
company audited and show all evidences to help the auditor toprepare the final report and to form his/her opinion.
b. …...the written record of the basis for the auditor’s conclusions
that provides the support for the auditor’s representations,
whether those representations are contained in the auditor’sreport or otherwise.