Partner’s Audit Engagement Documentation

• Chapter 0 - Overview
  • Introduction
  • Organization
• Chapter 1 - Definition of Workpapers
  • Learning Objectives
  • Introduction
  • Why Workpapers Are Important
  • Basic Workpaper Requirements
  • Audit Standards Affecting Workpaper Content
    • AU Section 339
    • Additional Guidance
    • Other Factors Affecting Workpapers
  • Audits Done under PCAOB Standards
  • Other Professional Services – Summary of Standards
  • The Nature of Workpapers
  • Summary
  • Appendix 1A – AU Section 339, Audit Documentation
  • Appendix 1B – Specific Audit Documentation Requirements in Addition to AU Section 339
  • Appendix 1C – Statement on Auditing Standards, Audit Documentation (Redrafted)
• Chapter 2 - Documentation of Planning and Supervision
  • Learning Objectives
  • Introduction
  • The First Standard of Fieldwork
  • Engagement Acceptance and Continuance
  • Independence
    • Threats to Independence
    • Provisions of Non-Attest Services
  • Engagement Letters
  • Audit Strategy and Detailed Audit Plan
    • Detailed Audit Plan
  • Risk
    • Documentation
  • Materiality
    • Documentation
  • Disagreements among Professional Staff
  • Summary
  • Appendix 2A – Examples of Matters the Auditor May Consider in Establishing the Overall Audit Strategy (From AU Section 311)
• Chapter 3 - Documenting the Required Understanding of the Entity, Tests of Control and Assessment of Risk
  • Learning Objectives
  • Introduction
  • Understanding the Entity and Its Environment
    • Documentation
  • The Auditor's Understanding of the Client's Internal Control
    • Control Environment
    • Risk Assessment
    • Control Activities
    • Information System
    • Monitoring
  • Documenting the Understanding of the Client's Internal Control
  • Preliminary Analytical Procedures
  • Planning Discussions
    • Documentation
  • Risk Assessment
    • Documentation
    • Fraud Risk Assessment
  • Control Risk Assessment
  • Tests of Controls
    • Documenting Tests of Controls
  • Documentation of the Risk Assessment
  • Summary
  • Appendix 3A – Example Documentation of the Understanding and Evaluation of the Entity and Its Environment
  • Appendix 3B – Example Documentation of the Understanding and Evaluation of Entity-level Controls
  • Appendix 3C – Example Documentation of the Understanding and Evaluation of IT General Controls
  • Appendix 3D – Example Documentation of Understanding and Evaluation of Activity Level Controls
  • Appendix 3E – Example Documentation of the Assessment of Risks of Material Misstatement
• Chapter 4 - Documenting Substantive Procedures and Audit Results
  • Learning Objectives
  • Introduction
  • Overall Response to Risk at the Financial Statement Level
  • Evidential Matter
    • Nature of Evidential Matter
    • Reliability
    • Sufficiency
  • Documentation
  • Types of Substantive Procedures
  • Tests of Details
    • Inspection of Records or Documents
    • Inspection of Tangible Assets
    • Observation
    • Inquiry
    • Confirmation
    • Recalculation
    • Reperformance
    • Other Procedures
  • Documentation of Tests of Details
  • Analytical Procedures
    • Documentation
  • Significant Findings
  • Misstatements Identified
  • Management Representation Letters
  • Attorney Letters
  • Analytical Procedures in the Final Review
  • Going Concern Issues
  • Required Communications
  • Consultations
  • Summary
• Chapter 5 - Workpaper Administration
  • Introduction
  • Workpaper Control
  • Completing the Workpaper File
  • Retention of Workpapers
  • Outside Access to Workpapers
  • Changes in CPA Firm Ownership
  • Summary
• Chapter 6 - Latest Developments

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Chapter 0 - Overview

Introduction

The focus of this course is practical guidance for developing and enhancing the auditor's ability to exercise professional judgment when creating appropriate, sufficient, and competent audit documentation for audit engagements.

Although the form, content, and type of audit documentation is a matter of professional judgment, changes in quality control standards (including Peer Review Program requirements) increased oversight activities by regulators, and the ever-present litigation environment all combine to make effective and efficient workpaper documentation, including the rationale for modifying the generic forms, checklists, and practice aids provided by various vendors, more important than ever.

The emphasis in each of the chapters will be identifying ways to comply with the audit documentation requirements in professional standards. Specifically, attention will focus on how to document the processes related to

• Identifying and reaching appropriate conclusions as to engagement risk, business risk, and client risk for each engagement, and then designing appropriate responses to such risks.

• Planning the nature, extent, and timing of procedures to be performed.

• Analyzing the results of the work performed and forming appropriate conclusions.

• Supervising all aspects of the engagement to insure compliance with professional standards, including quality control.

Organization

This course's chapters and their content are as follows:

• Chapter 1, "Definition of Workpapers," discusses the authoritative standards for workpapers.

• Chapter 2, "Documentation of Planning and Supervision," discusses how the auditor documents his or her compliance with the first standard of fieldwork.

• Chapter 3, "Documenting the Required Understanding of the Entity, Tests of Control and Assessment of Risk," discusses obtaining the understanding necessary to assess risk, flowcharting, use of narratives and checklists, and documenting tests of controls and findings.

• Chapter 4, "Documenting Substantive Procedures and Audit Results," discusses the types of evidence and the auditor's required documentation for the different types of substantive procedures.

• Chapter 5, "Workpaper Administration," discusses issues of workpaper access and retention.

Chapter 1 - Definition of Workpapers

Learning Objectives

After completing this chapter you should be able to

• Describe why workpapers are necessary.

• Identify the standards that impose specific workpaper requirements.

• Define the workpaper requirements in AU Section 339 (previously indexed as SAS No. 103) and other guidance.

Introduction

AU Section 339 (previously indexed as SAS No. 103), Audit Documentation, requires auditors on every audit engagement to prepare and maintain audit documentation, which is often referred to as working papers or workpapers. In this chapter, we examine that requirement and learn about specific workpapers that are required by other professional standards. We also look at the impact of practice-monitoring programs and the litigation climate on documenting the work performed.

Why Workpapers Are Important

It is often the case that in lawsuits accountants are criticized or penalized not because their work was deficient but because their workpapers did not reflect the work done. That is, they did the work or considered the appropriate matters but could not prove it because the workpapers provided inadequate documentation. These accountants paid the price even though they applied the procedures that were appropriate in the circumstances.

If the workpapers do not reflect what was done, a court may have no basis to conclude that the appropriate procedures were performed. Failure to adequately document what was done may be assessed essentially as failure to perform appropriate procedures. Workpaper documentation is very important.

Workpapers are crucial after the audit because they

• Provide information about whether the audit was conducted as planned and whether the financial statements are presented in conformity with GAAP.

• Demonstrate evidence of conformity with auditing standards for supervisory review, practice monitoring programs (e.g., peer reviews), and for litigation, if necessary.

• Leave a roadmap for future audits.

Basic Workpaper Requirements

Generally accepted auditing standards impose many specific documentation requirements based on the notion that documentation is an essential element of audit quality. The trend in standards has been towards more specific documentation requirements as the Auditing Standards Board came to believe that the need to document an item will drive practice to better incorporate required procedures and considerations into audits.

Although auditing standards establish specific workpaper requirements, decisions about the quantity, type, and content of workpapers is generally a matter of auditor judgment. That is, standards require that certain things be documented, but how you document them is up to you, based on your preferences and your firm's policies.

In this section, we examine the fundamental requirements imposed by AU Section 339 (previously indexed as SAS No. 103). Then, we review specific guidelines required by additional guidance. To reinforce the importance of these statements, we have reproduced the relevant portions. To do your job well as an auditor, it is essential that you understand the details in your professional standards and the reasons for them. Begin by reading AU Section 339 reproduced at Appendix 1A, taking special note of the functions and nature of workpapers, their contents, and ownership.

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