“If not documented means not done”, how can
you find the right documentation balance?
Presenter
Henry McClintock – Partner, BDO
Jackie Russell-Green, CA – Technical Associate, BDO
AUDIT DOCUMENTATION:
FINDING THE RIGHT BALANCE
Henry McClintock and Jackie Russell-Green, BDO
Jacco Moison, Financial Markets Authority
AUDIT DOCUMENTATION:
FINDING THE RIGHT BALANCE
“The skill of an accountant can always be ascertained by an inspection of his working
papers.”
— Robert H. Montgomery, Montgomery’s Auditing, 1912
Audit documentation: Finding the right balance
Page 3
DOCUMENTATION MANAGEMENT:
DIFFERENT SCHOOLS OF THOUGHT
EVERYTHING I TOUCH AND SEE
DURING THE AUDIT BELONGS ON
MY AUDIT FILE
LESS IS MORE
Audit documentation: Finding the right balance
Page 4
TODAY’S OUTCOMES

Improved understanding of the requirements of ISA (NZ) 230 Audit Documentation

Awareness of key findings from Financial Markets Authority’s review’s

Know what it all means in practice – discussion around some real life examples
Audit documentation: Finding the right balance
Page 5
The requirements of ISA (NZ) 230 Audit Documentation
Audit documentation: Finding the right balance
Page 6
ISA (NZ) 230 AUDIT DOCUMENTATION:
OVERALL OBJECTIVE
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 International Standards
on Auditing (New Zealand (ISAs (NZ)) and applicable legal and regulatory requirements
Audit documentation: Finding the right balance
Page 7
ISA (NZ) 230 AUDIT DOCUMENTATION:
PURPOSE OF AUDIT DOCUMENTATION
Audit documentation that meets the requirements of ISA (NZ) 230 provides:
 Evidence of the auditor’s basis for a conclusion about the achievement of the overall
objectives of the auditor; and
 Evidence that the audit was planned and performed in accordance with ISAs (NZ) and
applicable legal and regulatory requirements
Audit documentation: Finding the right balance
Page 8
ISA (NZ) 230 AUDIT DOCUMENTATION:
PURPOSE OF AUDIT DOCUMENTATION
Audit documentation serves a number of additional purposes, including:
 Assisting the engagement team to plan and perform the audit
 Assisting members of the engagement team responsible for supervision to direct and supervise
the audit work, and to discharge their review responsibilities in accordance
 Enabling the engagement team to be accountable for its work
 Retaining a record of matters of continuing significance to future audits
 Enabling the conduct of quality control reviews and inspections in accordance with PES 3
Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other
Assurance Engagements
 Enabling the conduct of external inspections in accordance with applicable legal, regulatory or
other requirements
Audit documentation: Finding the right balance
Page 9
ISA (NZ) 230 AUDIT DOCUMENTATION:
FORM, CONTENT AND EXTENT OF DOCUMENTATION
The auditor must prepare 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 to comply with ISAs (NZ)
and applicable legal and regulatory requirements;
b) The results of the audit procedures performed, and the audit evidence obtained;
c) Significant matters arising during the audit, the conclusions reached thereon, and significant
professional judgements made in reaching those conclusions
Audit documentation: Finding the right balance
Page 10
ISA (NZ) 230 AUDIT DOCUMENTATION:
FORM, CONTENT AND EXTENT OF DOCUMENTATION
The form, content and extent of audit procedures depends on factors 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 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
 The audit methodology and tools used
Audit documentation: Finding the right balance
Page 11
ISA (NZ) 230 AUDIT DOCUMENTATION:
NATURE, TIMING AND EXTENT OF PROCEDURES
In documenting the nature, timing and extent of audit procedures performed, the auditor must
record:
The identifying
characteristics
of the specific
items or
matters tested
Audit documentation: Finding the right balance
Page 12
Who performed
the audit work
and the date
such work was
completed
Who reviewed the
audit work
performed and the
date and extent of
such review
ISA (NZ) 230 AUDIT DOCUMENTATION:
IDENTIFYING CHARACTERISTICS OF ITEMS TESTED
 Enables the engagement team to be accountable for its work
 Facilitates the investigation of exceptions or inconsistencies
Identifying characteristics will vary with the nature of the
audit procedure and the item or matter tested
Audit documentation: Finding the right balance
Page 13
ISA (NZ) 230 AUDIT DOCUMENTATION:
IDENTIFYING CHARACTERISTICS OF ITEMS TESTED
Detailed test of supplier invoices
What are the identifying
characteristics?
 Supplier name
 Date
 Purchase order number
 Reference
Audit documentation: Finding the right balance
Page 14
ISA (NZ) 230 AUDIT DOCUMENTATION:
IDENTIFYING CHARACTERISTICS OF ITEMS TESTED
Procedure requiring selection or
review of all items over a specific
amount from a given population
 Record the scope of the procedure
 Identify the population (all items
included in the fixed asset register
dated 31 December 2014)
Audit documentation: Finding the right balance
Page 15
ISA (NZ) 230 AUDIT DOCUMENTATION:
IDENTIFYING CHARACTERISTICS OF ITEMS TESTED
Procedure requiring systematic
sampling from a population of
documents
Identify the documents selected by
recording:
 Their source
 The starting point
 The sampling interval
Audit documentation: Finding the right balance
Page 16
A systematic sample of
shipping reports selected
from the shipping log for the
period from 1 April to 30
September 2014, starting
with report number 12345
and selecting every 125th
report
ISA (NZ) 230 AUDIT DOCUMENTATION:
IDENTIFYING CHARACTERISTICS OF ITEMS TESTED
Procedure requiring enquiries of
specific entity personnel
 Record the dates of the enquiries
 Record the names and job
designations of the entity
personnel
 Record detail of the questions
asked and responses received
Audit documentation: Finding the right balance
Page 17
Enquired from
John Smith, the
warehouse
manager, on 1
January 2015
ISA (NZ) 230 AUDIT DOCUMENTATION:
IDENTIFYING CHARACTERISTICS OF ITEMS TESTED
An observation procedure
Record the following:
 Process or matter being observed
 The relevant individuals
 Their respective responsibilities
 Where and when the observation
was carried out
Audit documentation: Finding the right balance
Page 18
ISA (NZ) 230 AUDIT DOCUMENTATION:
SIGNIFICANT MATTERS ARISING DURING THE AUDIT
Document discussions of
significant matters with
management, those charged
with governance, and others
Documentation is not
limited to records
prepared by the auditor
but may include other
appropriate records
Audit documentation: Finding the right balance
Page 19
Significant
matters
Include the nature of the
significant matters
discussed and when and
with whom the discussions
took place
ISA (NZ) 230 AUDIT DOCUMENTATION:
SIGNIFICANT MATTERS ARISING DURING THE AUDIT
If the auditor identifies information that is inconsistent with the final conclusion regarding a
significant matter:
 Document how the auditor addressed the inconsistency
 Does not imply that the auditor needs to retain documentation that is incorrect / superseded
Audit documentation: Finding the right balance
Page 20
ISA (NZ) 230 AUDIT DOCUMENTATION:
SIGNIFICANT MATTERS ARISING DURING THE AUDIT
Documentation of the professional judgements assist in:
 Explaining the auditor’s conclusions and reinforcing the quality of the
judgement
 Reviewing audit documentation
 Carrying out subsequent audits when reviewing matters of continuing
significance
 Performing a retrospective review of accounting estimates
 Clearly supporting the conclusion reached at a particular point in time
Audit documentation: Finding the right balance
Page 21
ISA (NZ) 230 AUDIT DOCUMENTATION:
REVIEW
The requirement to document who reviewed the audit work performed does not imply a need for
each specific working paper to include evidence of review
Document what audit
work was reviewed,
who reviewed such
work, and when it was
reviewed
Audit documentation: Finding the right balance
Page 22
AUDIT DOCUMENTATION
BENEFITS OF CLEAR AND ACCURATE WORK PAPERS
 Easier for the senior, manager and partner to review
 Results in fewer review points arising out of misunderstandings
Contributes to improving audit quality
Audit documentation: Finding the right balance
Page 23
ISA (NZ) 230 AUDIT DOCUMENTATION:
ASSEMBLY OF AUDIT DOCUMENTATION
The auditor must assemble audit documentation on a timely basis
After assembly of the audit file has been completed, audit
documentation must not be deleted or discarded prior to the end of the
retention period
Where it is necessary to modify existing documentation/add new
documents, the auditor must explain the specific reason for
modification/addition, who did the work and when and who reviewed it
and when
Audit documentation: Finding the right balance
Page 24
Audit documentation: Finding the right balance
Page 25
DOCUMENTATION IS
TELLING THE
STORY
Audit documentation: Finding the right balance
Page 26
The Financial Markets Authority’s Annual Review
Audit documentation: Finding the right balance
Page 27
KEY MESSAGES



Documentation is not a requirement to satisfy regulators but to demonstrate that sufficient
audit evidence is obtained
Professional scepticism can only be demonstrated by documentation
Clear documentation is important throughout the entire audit file
Audit documentation: Finding the right balance
Page 28
What it all means in practice – some real life examples
Audit documentation: Finding the right balance
Page 29
TIPS
Included in ASA 230
The auditing standard acknowledges:
It is neither necessary
nor practicable for
the auditor to
document every
matter considered, or
professional
judgement made, in
an audit
The audit
documentation for
the audit of a
smaller entity is
generally less
extensive than that
for the audit of a
larger entity
It is efficient to record various aspects of
the audit together in a single document,
with cross-references to supporting working
papers as appropriate
Audit documentation: Finding the right balance
Page 30
TIPS
Included in ASA 230
Prepare a summary of significant matters identified
during the audit
Summary of significant matters:
• Description of all significant
matters
• How these matters were addressed
• Cross-references to other relevant
supporting audit documentation
that provides such information
Audit documentation: Finding the right balance
Page 31
TIPS
General
 Obtain information electronically (memory stick, email)
where possible
 Tabulate financial data into logical and meaningful tables,
graphs or ordered financial information
 Format neatly and clearly
Audit documentation: Finding the right balance
Page 32
TIPS
General
 Proof read your final working paper
Would an experienced auditor, having no
previous connection with the audit, be
able to re-perform your work and draw the
same conclusion?
Audit documentation: Finding the right balance
Page 33
TIPS
Contract and legal agreements
When we refer to contracts /other legal agreements
Is it always necessary to retain a copy of the entire
contract?
Documentation to include:
 ‘Agreed to contract XX dated XX’
 Extract or copy the relevant part of the agreement only
Audit documentation: Finding the right balance
Page 34
TIPS
External confirmations
When we obtain external confirmations, bank letters,
debtors confirmations
Is it always necessary to keep all external
confirmations on file?
Documentation to include:
 Include list of debtor balances tested and confirmations received.
 How are we sure where the confirmation came from? Emails are easier now to
forge? Do phone to check?
Audit documentation: Finding the right balance
Page 35
TIPS
Constitutional documents
Constitutional documents tend to be long and complicated
documents containing information that is not relevant for audit
purposes


Extract and retain the information that is relevant to the
audit
Documentation to include reference to source and date
Audit documentation: Finding the right balance
Page 36
TIPS
Fixed asset registers and listings
Copy of registers or listings maintained to support balances in
the general ledger
Documentation to include:
‘Debtors
age analysis as at 30 June 20X1 totalling $XX as
extracted from the system on 5 August 20X1 agrees to general
ledger balance’
Audit documentation: Finding the right balance
Page 37
TIPS
Financial reports
Copies of financial reports to be retained are:

Engagement partner / EQCR review copy

Final draft with evidence of casting and cross reference
checks

Cross-referenced into lead schedules

Final signed copy
Audit documentation: Finding the right balance
Page 38
TIPS
Documenting professional scepticism
Use file notes well

File note key discussions within team and client

Note the questions you asked

Do it immediately after meeting

Use voice recognition software (on your iphone)
Audit documentation: Finding the right balance
Page 39
QUESTIONS
Audit documentation: Finding the right balance
Page 40