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An overview of requirements for work paper documentation in U.S. audits (based on generally accepted auditing standards; not a comprehensive detail of all requirements)
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What is Audit Documentation?
Support for:Representation that a GAAS audit was performedOpinion that financials conform to GAAP
Communicating Clearly
Communicating Clearly
Ever looked at a workpaper and asked...
What is this?
Communicating Clearly
Only include what is necessary
Communicating Clearly
Excessive wording, numbers, etc. will only
confuse
Communicating Clearly
Excessive documentation may also lead to litigation
exposure
Purpose
Purpose of work paper – To test the completeness assertion by performing a search for unrecorded liabilities
Conclusion
Conclusion – completeness of payables is appropriate
No Purpose
If there is no purpose for the work paper, then ask:
Do I need this work paper?
No PurposeThe purpose can refer to the appeasement of a particular audit risk; for example: Purpose - to address the completeness assertion in accounts payable - the risk is that payables are understated
Does work paper support audit
plan?
Does Work Paper Support Audit Plan?
If no, then ask:Do I need this work paper?
If yes, then add additional step to the audit programIf no, then remove the work paper
GAAS Requirements
Unconditional Documentation Requirements
1. Provide clear understanding of work performed, evidence obtained and conclusions reached
2. Document how a departure from any presumptively mandatory GAAS requirement was justified and how alternative procedures were sufficient
3. Cannot delete or alter documentation for at least five years
Extent Sufficient for an experienced auditor with no previous connection to the audit to understand:
Nature, timing and extent of the procedures applied to comply with GAASThe results of the audit proceduresThe significant judgments made and conclusions reached on significant findings or issues
Documentation Requirements
1.Who performed the work and when the work was performed
2.Who reviewed the work and when
Reviewer not required to sign off on every work paperMight be met by signing off a checklist or memo
Documentation Requirements
Identifying characteristics, such as invoice, part number, or location of informationAbstracts or copies of entity records (when needed, e.g., debt agreements)Date the audit report was released
Documentation Requirements
Significant findings or issuesActions taken to address themAny additional evidence obtainedBasis for final conclusionDiscussions with others (such as management)
Significant Findings or Issues
Examples of IssuesSelection, application, and consistency of accounting principles, including related disclosuresAccounting for complex or unusual transactions Accounting estimates and uncertainties
Significant Findings or Issues
Results of audit procedures indicating:
The financial information or disclosures could be materially misstatedA need to revise the auditor’s previous assessment of the risks of material misstatement and the auditor’s responses to those risks
Significant Findings or Issues
Circumstances that cause significant difficulty in applying auditing procedures (for example, lack of confirmation responses)Findings that could result in a modification of the auditor’s reportMaterial auditor-identified corrections of financial information
Lockdown of Audit Files
Audit files should be locked down within 60 days of the release date Use a tickler file to ensure that files are locked downBetter yet, lock down the files on the day the financial statements are issued
Changes After 60 Days
Document additions or changes including:
When and by whom (and whether changes were reviewed)Reasons for change
Retention Period
Files should be maintained for a minimum of five years from the release date Create system for appropriate removal of files after the retention periodDon’t retain files longer than necessary; can create litigation exposure
Work Papers
Engagement LetterConsultations with others (inside and outside the CPA firm)Risk assessment proceduresWalkthroughsPlanning analytics
Work Papers
Engagement team discussion Understanding of the entity and its environmentRisk assessmentFraud considerations
Work Papers
Audit planAudit strategy Oral confirmationsIf accounts receivable not confirmed – how you overcame the presumption that receivables would be confirmed
Work Papers
Representation letterSAS 114 letter (or document oral communication)SAS 115 letter – significant and material weaknessesMateriality
Work Papers
Adjusting journal entries (both passed and posted)Going concernConclusion as to whether uncorrected misstatements cause the financial statements to be materially misstated
Engagement Letter
Objective and scope of the audit
Responsibilities of the auditor and management
Statement that an unavoidable risk exists that some material misstatements may not be detected even though the audit is properly planned and performed
Identification of applicable reporting framework (e.g., GAAP)
Engagement LetterMulti-year engagement letter
If the terms are not revised, that management has been reminded of the engagement terms
If the terms are revised, the new terms are added
Consultation
Nature and scope of the consultation
Conclusions reached
Basis for conclusions
Work Papers
All reviews (in-charge, partner, quality control) should be performed prior to or concurrent with the opinion dateRendering an opinion without appropriate timely reviews may create legal exposure
What if I lose my work papers?
Dog Ate My Homework
A nonauthoritative technical practice aid, Considerations When Audit Documentation Has Been Destroyed by Fire, Flood, or Natural Disaster (TIS 8345.02), says that such destruction of audit documentation precludes the auditor from stating that the audit was performed in accordance with GAAS. It indicates the need to create new documentation to replace that destroyed if the auditor's report has not been issued. The practice aid suggests that, in most cases, it will be necessary to re-perform the audit procedures.
Practical Considerations
Removeaphobia
Afraid to Remove?
Move the work paper to a central “File 13”
Conclusion of audit -
delete file 13
Delete all review notes
Discard draft work papers
