AUDIT DOCUMENTATION

6.1
CHAPTER
6
AUDIT
DOCUMENTATION

LEARNING OUTCOMES
After studying this chapter, you would be able to understand-
 Audit Documentation.
 Nature and purpose of audit documentation.
 Form, content and extent of audit documentation.
 Audit documentation summary.
 Audit file.
 Assembly of the final audit file.
 Ownership of audit documentation.
 Practicality of above concepts by studying through examples
and case studies.

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1. SA 230 : AUDIT DOCUMENTATION

1.1 Definition of Audit Documentation:

 Audit Documentation refers to the record of audit procedures
performed, relevant audit evidence obtained, and conclusions the
auditor reached.

1.2 Objective of the Auditor:

The objective of the auditor is to prepare documentation that provides:
(a) A sufficient and appropriate record of the basis for the auditor’s
report; and
(b) Evidence that the audit was planned and performed in accordance
with SAs and applicable legal and regulatory requirements.
(IMP)

1.3 Nature of Audit Documentation

Audit documentation provides:
(a) evidence of the auditor’s basis for a conclusion about the
achievement of the overall objectives of the auditor; and (IMP)
(b) evidence that the audit was planned and performed in accordance
with SAs and applicable legal and regulatory requirements.

1.4 Purpose of Audit Documentation (IMP)

The following are the purpose of Audit documentation:
1. Assisting the engagement team to plan and perform the audit.

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2. Assisting members of the engagement team to direct and

supervise the audit work, and to discharge their review
responsibilities.
3. Enabling the engagement team to be accountable for its work.
4. Retaining a record of matters of continuing significance to future
audits.
5. Enabling the conduct of quality control reviews and inspections
in accordance with SQC 1.
6. Enabling the conduct of external inspections in accordance with
applicable legal, regulatory or other requirements.
ILLUSTRATION 1
A new team member of the auditors of Extremely Vibrant Limited was of
the view that Audit Documentation does not help in planning the audit of
any company. Explain whether Audit Documentation has any relation with
regard to planning the audit of a company.
SOLUTION
Audit Documentation helps in planning the audit of a company in a proper
manner and also helps in conducting the audit of that company in a more
effective way.

1.5 Form, Content and Extent of Audit

Documentation (IMP)
 The auditor shall prepare audit documentation that is sufficient to
enable an experienced auditor, having no previous connection
with the audit, to understand:
(a) The nature, timing and extent of the audit procedures
performed.
(b) The results of the audit procedures performed and the audit
evidence obtained
(c) Significant matters arising during the audit and the
conclusions reached thereon and significant professional
judgements made in reaching those conclusions.
 Further in documenting the nature, timing and extent of audit
procedures performed, the auditor shall record:

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(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.
 The auditor shall document discussions of significant matters
with management, those charged with governance, and others,
including the nature of the significant matters discussed and
when and with whom the discussions took place.
 If the auditor identified information that is inconsistent with the
auditor’s final conclusion regarding a significant matter, the auditor
shall document how the auditor addressed the inconsistency.
The form, content and extent of audit documentation
depend on factors such as:
1. The size and complexity of the entity.
2. The nature of the audit procedures to be performed.
3. The identified risks of material misstatement.
4. The significance of the audit evidence obtained.
5. The nature and extent of exceptions identified.
6. 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.
7. The audit methodology and tools used.

1.6 Examples of Audit Documentation (MCQ)

Audit documentation may be recorded on paper or on electronic or
other media.
Example

Audit Documentation include:

Audit programmes.
Analyses.
Issues memoranda.

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 6.6 AUDITING AND ETHICS

Summaries of significant matters.

Letters of confirmation and representation.

Checklists.

Correspondence (including e-mail) concerning significant matters.

The auditor may include copies of the entity’s records (for example,
significant and specific contracts and agreements) as part of audit
documentation. Audit documentation is not a substitute for the entity’s
accounting records.
The auditor need not include in audit documentation superseded drafts of
working papers and financial statements, notes that reflect incomplete or
preliminary thinking, previous copies of documents corrected for
typographical or other errors, and duplicates of documents.

Audit
Correspondence programmes
(including e-mail)
concerning Analyses
significant
matters
AUDIT
DOCUMENTATION
INCLUDE
Checklists Issues
memoranda

Letters of Summaries
confirmation of
and significant
representation matters

1.7 Timely Preparation of Audit Documentation

 The auditor shall prepare audit documentation on a timely basis.
 Preparing sufficient and appropriate audit documentation on a timely
basis helps to enhance the quality of the audit and facilitates the
effective review and evaluation of the audit evidence obtained and
conclusions reached before the auditor’s report is finalised.

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 Documentation prepared after the audit work has been performed is

likely to be less accurate than documentation prepared at the time such
work is performed.

1.8 Audit File

one or more folders

or other storage media

in physical or electronic form, containing

record
the
that comprise

the audit documentation for

specific
a engagement

ILLUSTRATION 2
While auditing the books of accounts of Very Careful Limited for the
financial year 2020-21, a team member of the auditors of Very Careful
Limited was of the view that with regard to audit of the company, no
relation exists between Audit File and Audit
Documentation. Explain the relationship between Audit File and Audit
Documentation.
SOLUTION
Audit file may be defined as one or more folders or other storage media, in
physical or electronic form, containing the records that comprise the audit
documentation for a specific engagement. The auditor shall assemble the
audit documentation in an audit file and complete the administrative
process of assembling the final audit file on a timely basis after the date of
the auditor’s report.

1.9 Assembly of the Final Audit File

The auditor shall assemble the audit documentation in an audit file and
complete the administrative process of assembling the final audit file on a
timely basis after the date of the auditor’s report.
 SQC 1 “Quality Control for Firms that perform Audits and Review of
Historical Financial Information, and other Assurance and related
services”, requires firms to establish policies and procedures for the
timely completion of the assembly of audit files.

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 An appropriate time limit within which to complete the assembly of

the final audit file is ordinarily not more than 60 days after the
date of the auditor’s report. The completion of the assembly of
the final audit file after the date of the auditor’s report is an
administrative process that does not involve the performance of new
audit procedures or the drawing of new conclusions.
 Changes may, however, be made to the audit documentation during
the final assembly process, if they are administrative in nature.

 After the assembly of the final audit file has been completed, the
auditor shall not delete or discard audit documentation of any
nature before the end of its retention period.
 SQC 1 requires firms to establish policies and procedures for the
retention of engagement documentation. The retention period for
audit engagements ordinarily is no shorter than seven years
from the date of the auditor’s report, or, if later, the date of the
group auditor’s report.

1.10 Documentation of Significant Matters and

Related Significant Professional Judgements
 Judging the significance of a matter requires an objective analysis
of the facts and circumstances.
 Finding that could result in a modification to audit opinion or
inclusion of EOM para in auditor’s report.
 Circumstances causing auditor significant difficulty in applying
nessesary audit procedure
 Result of audit procedure indicating:
i. That financial statement could be materially misstated
ii. Need to revise auditor’s previous assessment of ROMM and auditor’s
response to assessed risk

1.11 Completion Memorandum or Audit

Documentation Summary
The auditor may consider it helpful to prepare and retain as part of the
audit documentation a summary (sometimes known as a completion
memorandum) that describes-
 the significant matters identified during the audit and

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 how they were addressed.

 Such a summary may facilitate effective and efficient review and
inspection of the audit documentation, particularly for large and
complex audits.
 Further, the preparation of such a summary may assist auditor’s
consideration of the significant matters. It may also help the auditor
to consider whether there is any individual relevant SA objective
that the auditor cannot achieve that would prevent the auditor from
achieving the overall objectives of the auditor.

1.12 Ownership of Audit Documentation

Standard on Quality Control

(SQC) 1 provides that audit
documentation
is thepropertyof He may make portions of, or
theauditor. extracts
from,auditdocumentation
available
to clientssubject
to some
conditions.

ILLUSTRATION 3
A director of Very Different Limited was of the view that Audit
Documentation of a company is the property of that company. Comment
on the contention of the director regarding the audit documentation of the
company.
SOLUTION
Audit Documentation of a company is not the property of the company
rather Audit Documentation is the property of Auditor of that company.

Test Your Understanding 1

During the course of audit of a company, an issue arose relating to
treatment of interest costs of company on its restructured loans taken
from a bank. This important matter was discussed with CFO of the
company and was properly resolved. Is it necessary for the auditor to
include in its working papers?

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Test Your Understanding 2

CA Sonali Morarka has completed audit of a listed company. The audit
report dated 15th July, 2022 has been issued. However, audit working
papers including record of discussions with management, details of audit
procedures performed to obtain audit evidence and conclusions reached
by her have not been properly assembled. More than six months have
elapsed after issue of audit report. Subsequently, she has received a letter
from regulator in connection with audit of the company requesting her to
share copy of audit file.
The letter has woken up her from deep slumber. She hurriedly assembled
audit file and inserted some more papers which were necessary. However,
she put current date on these inserted papers and the copy of audit file
was sent to regulator.
Discuss, the issues involved, in context of “audit documentation”.

CASE STUDY
CA Rajan Pillai is heading the engagement team conducting audit of a
company. While audit is in progress, consider following issues regarding
audit documentation:-
(A) Audit programme was prepared assigning responsibilities for different
types of works to be performed to team members. The engagement
team consists of 4 members Mohit (CA final student), Rohit (CA final
student), Shobhit (Paid CA) and CA Rajan Pillai (partner of audit firm).
(B) The team has determined materiality for financial statements as a
whole.
(C) The team has assessed risks of material misstatements to be low.
(D) CA Shobhit is responsible for attending inventory count process and
putting down its documentation part.
(E) During the course of audit, many related party transactions have
come to notice.

On the basis of above, answer the following

questions:
(1) Work relating to verification of revenue was assigned to Mohit in
audit programme. However, it is being performed by Rohit actually.
Verification of trade receivables was planned to be carried out by

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Rohit in audit programme. However, it being performed by CA Rajan
Pillai due to last minute practical issues. Which of the following
statements is most appropriate in this regard relating to audit
documentation?
(a) Audit programme contains names of persons and work to be
performed. It is immaterial whether work assigned to one
person is performed by another person.
(b) Audit programme was already prepared. Only persons assigned
specific responsibilities can perform those duties.
(c) It is necessary that audit programme be suitably updated or
notes are given in working papers to this effect so that planned
duties are in accordance with actual work performance.
(d) Changes in audit programme or notes clarifying the matter are
required only when a person not forming part of engagement
team is deputed to perform a duty. Otherwise, this issue of
inter-shuffling of team members is frivolous.
(2) As regards materiality, which of the following statements is most
appropriate in context of audit documentation?
(a) Materiality has already been determined. There is no need to
put it into working papers.
(b) Materiality depends upon professional judgment of auditor.
Whatever amount has been determined can be documented in
working papers.
(c) Materiality arrived on basis of professional judgment along with
factors considered in the determination has to be documented.
(d) Materiality has been arrived upon professional judgment. It also
depends upon professional judgment of auditor whether he
wants to document it or not.
(3) As regards team’s assessment that risk of material misstatements is
low, which of the following statements is odd one relating to
documentation of risk?
(a) Discussion amongst engagement team members and detail of
significant decisions reached has to be documented.
(b) Details of risk assessment procedures have to be documented.

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(c) Details about how understanding of each component of internal

control was obtained has to be documented.
(d) Precise calculation of risk of material misstatements has to be
documented.
(4) CA Shobhit is responsible for attending physical inventory count of
the company. Which of the following is not true in this regard relating
to audit documentation?
(a) Dates on which physical inventory count process was attended
by him should be documented. It may also include photographs
of that date showing his attendance of inventory counting
process at a particular location.
(b) Detail of test counting undertaken should form part of audit
documentation.
(c) Detail of obsolete goods found should form part of audit
documentation.
(d) Reports showing that stocks conform to quality control
standards in accordance with law are essential part of audit
documentation.
(5) As regards related party transactions, which of the following should
not be part of audit documentation?
(a) Management representation letter in this regard
(b) Related party transaction policy of the company
(c) Documentation to show that such transactions are at arm’s
length basis
(d) Documentation to show that such transactions are at close
length basis.

Answers to Questions involving case study

1. c 2. c 3. d 4. d 5. d

SUMMARY
 SA 230 on “Audit Documentation”, deals with the auditor’s
responsibility to prepare audit documentation for an audit of financial
statements.

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 Audit documentation refers to 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.
 The objective of auditor is to prepare audit documentation that
provides a sufficient and appropriate record of the basis for auditor’s
report and evidence that audit was planned and performed in
accordance with Standards on Auditing and applicable legal and
regulatory requirements.
 The form, content and extent of audit documentation depend on
number of factors.
 Audit documentation may be recorded on paper or on electronic or
other media.
 The auditor shall prepare audit documentation on a timely basis.
Preparing sufficient and appropriate audit documentation on a timely
basis helps to enhance the quality of the audit and facilitates the
effective review and evaluation of the audit evidence obtained and
conclusions reached before the auditor’s report is finalized.
 Audit file may be defined as one or more folders or other storage
media, in physical or electronic form, containing the records that
comprise the audit documentation for a specific engagement.
 The auditor shall assemble the audit documentation in an audit file
and complete the administrative process of assembling the final
audit file on a timely basis after the date of the auditor’s report.
 An appropriate time limit within which to complete the assembly of
the final audit file is ordinarily not more than 60 days after the date
of the auditor’s report. The completion of the assembly of the final
audit file after the date of the auditor’s report is an administrative
process that does not involve the performance of new audit
procedures or the drawing of new conclusions.
 After the assembly of the final audit file has been completed, the
auditor shall not delete or discard audit documentation of any nature
before the end of its retention period.
 The retention period of documentation for audit engagements
ordinarily is no shorter than seven years from the date of the
auditor’s report, or, if later, the date of the group auditor’s report.

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 Unless otherwise specified by law or regulation, audit documentation

is the property of the auditor. He may at his discretion, make portions
of, or extracts from, audit documentation available to clients,
provided such disclosure does not undermine the validity of the work
performed, or, in the case of assurance engagements, the
independence of the auditor or of his personnel.

TEST YOUR KNOWLEDGE

MCQs based Questions
(1) Which of the following statement is appropriately suited to
preparation of audit documentation?
(a) Audit documentation has to be prepared simultaneously as
audit progresses.
(b) Audit documentation has to be prepared 60 days after date of
audit report.
(c) Audit documentation has to be prepared when information is
required by regulator.
(d) Audit documentation has to be prepared 60 days after
completion of audit work.
(2) Audit documentation is owned by: -
(a) Client
(b) Auditor
(c) Team member responsible for documentation
(d) Regulator
(3) Which of the following is least likely to be included in audit
documentation of a company engaged in manufacturing and export
of goods?
(a) Previous years audited financial statements
(b) Projected cash flow statement for next twelve months provided
by management in support of going concern assumption
(c) Statements showing dispatch of overseas consignments in
accordance with delivery schedules of overseas buyers

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(d) Statement showing verification of ageing of trade receivables
as on date of balance sheet

(4) Which of the following is false in relation to audit documentation

when an external auditor relies upon work of internal auditor?
(a) Evaluation of objectivity and competence of internal auditor has
to be documented.
(b) Nature of work used and reason for relying upon work used
forms part of documentation.
(c) Documentation on whether quality control is exercised in
internal audit work forms part of audit documentation.
(d) Documentation on what specific recommendations were given
by internal auditor for risk assessment to external auditor forms
part of audit documentation.

Correct/Incorrect
State with reasons (in short) whether the following
statements are correct or incorrect:
(i) As per SA 230 on “Audit Documentation”, the working papers are not
the property of the auditor.
(ii) Mr. A is a statutory auditor of ABC Ltd. The branch of ABC Ltd. is
audited by Mr. B, another Chartered Accountant. Mr. A requests for
the photocopies of the audit documentation of Mr. B pertaining to the
branch audit.

Theoretical Questions
1. The form, content and extent of audit documentation depends upon
number of factors. List out any four such factors.
2. Discuss any two purposes of audit documentation.
3. Define audit documentation. Also give some examples.
4. “Audit documentation summary may facilitate effective and efficient
reviews and inspections of the audit documentation, particularly for
large and complex audits”. Explain.

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ANSWERS/ SOLUTIONS
Answers to the MCQs based Questions
1. a 2. b 3. c 4. d

Answers to Correct/Incorrect
(i) Incorrect: As per SA 230 on “Audit Documentation” the working
papers are the property of the auditor and the auditor has right to
retain them. He may at his discretion can make available working
papers to his client. The auditor should retain them long enough to
meet the needs of his practice and legal or professional requirement.
(ii) Incorrect: SA 230 issued by ICAI on Audit Documentation, and
“Standard on Quality Control (SQC) 1, provides that, unless otherwise
specified by law or regulation, audit documentation is the property of
the auditor. He may at his discretion, make portions of, or extracts
from, audit documentation available to clients, provided such
disclosure does not undermine the validity of the work performed, or,
in the case of assurance engagements, the independence of the
auditor or of his personnel.

Answers to Theoretical Questions

1. Refer to heading “Form, content and extent of audit documentation”
2. Refer to heading “Purpose of audit documentation”
3. Audit Documentation refers to 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.)
Refer Heading – Examples of Audit Documentation
4. Refer Heading – Completion Memorandum or Audit Documentation
Summary

Answers to Questions involving Test your

Understanding
(1) The auditor shall document discussions of significant matters with
management, those charged with governance, and others, including
the nature of the significant matters discussed and when and with
whom the discussions took place.

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In the instant case, an important matter regarding treatment of interest
costs of company on its restructured loans taken from a bank directly
impacting profits of the company was discussed. Although issue was
resolved, it is necessary to document the same by including detail of
the person with whom discussions took place along with date.
(2) An appropriate time limit within which to complete the assembly of
the final audit file is ordinarily not more than 60 days after the date
of the auditor’s report.
Further, preparing sufficient and appropriate audit documentation on a
timely basis helps to enhance the quality of the audit and facilitates
the effective review and evaluation of the audit evidence obtained
and conclusions reached before the auditor’s report is finalized.
Documentation prepared after the audit work has been performed is
likely to be less accurate than documentation prepared at the time
such work is performed.
In the given case, even after passage of more than six months, she has
not assembled audit file. Besides, she has put in some papers with
current date which is not permissible at all. It shows that part of audit
documentation has been prepared afterwards putting a question
mark on quality of audit.

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