Part Five
Auditing Standards, Audit Evidence
&
Audit documentation
Structure of Seminar
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1. Auditing Standards
2. Audit evidence
3. Audit Procedures
4. Audit documentation
1. Auditing Standards
• From 2004, Auditing & Assurance Standards
Board (AUASB) constituted under the
government’s Financial Reporting Council
(FRC); issues Australian Auditing Standards
(ASAs)
• From 1 July 2006, Australia fully adopted
international auditing standards (ISAs)
• Standards a minimum level of care
2. Audit evidence
• Audit evidence is used to verify management’s F/S
assertions
• Evidence is gathered and evaluated to meet specific
audit objectives
• Evidence consists of
-Underlying accounting data of entity
-All corroborating information
• Underlying accounting data
– Books of original entry
– General & subsidiary ledgers
Audit evidence
– Related accounting manuals
– Memoranda & informal records
• Corroborating information
– Documents (cheques, invoices, receipts, etc)
– Confirmations & other written representations
– Information from inquiry, observations, inspection
& physical examination
– All other information acquired by auditor
Audit evidence
• ASA 200 ‘Audit Evidence’
– “the auditor should obtain sufficient, appropriate
audit evidence to be able to draw reasonable
conclusions on which to base the audit opinion”
• Sufficiency of audit evidence
– Materiality and audit risk
– Economic factors
-Cost-benefit
– Population size and characteristics
-sampling
Audit evidence
• Appropriateness of audit evidence
– Relevance
– Reliability
• Source & nature of information
• Timeliness
• Objectivity
• Reasonable basis for forming opinion – evidence is
persuasive not conclusive
Reliability of documentary evidence
Types of Evidence
3. Audit Procedures
• Methods & techniques used by auditor to gather
evidence
• Analytical procedures
• Inspecting
• Tracing
• Vouching
• Confirming
• Enquiring
• Counting
Audit Procedures
• Observing
• Re-performing
• Many of these procedures can be performed with
audit software
Vouching vs Tracing
Audit Procedures
• Classification of auditing procedures
1)Procedures to obtain an understanding of the
internal control structure
2)Tests of controls
Substantive procedures
• Tests of details of transactions
• Tests of details of balances
• Analytical procedures
Evaluation of Evidence Obtained
4. Audit documentation
• It is important to document audit work performed in
working papers to:
— Enable reporting partner to ensure all planned
work has been completed adequately
— Provide details of work done for future
reference
— Assist in planning and control of future audits
— Encourage a methodical approach
Audit documentation
1) The objective of audit documentation
Audit documentation is the record of audit
procedures performed, relevant audit evidence
obtained and conclusions reached. The term 'working
papers' or 'work papers' are also sometimes used.
Audit documentation is necessary for the following
reasons:
— It provides evidence of the auditor’s basis for a
conclusion about the achievement of the overall
objective.
Audit documentation
— 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.
Audit documentation
— It enables the conduct of quality control reviews
and inspections (both internal and external).
2) Form and content of working papers
• The ISA requires working papers to be sufficiently
complete and detailed to provide an overall
understanding of the audit. Auditors cannot record
everything they consider.
• The form and content of working papers are affected
by matters such as:
— The size and complexity of the entity
Audit documentation
— 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
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(1) Permanent audit files
These contain:
Engagement letters
New client questionnaire
The memorandum and articles
Other legal documents such as prospectuses,
leases, sales agreement
Details of the history of the client’s business
Board minutes of continuing relevance
Audit documentation
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Previous years’ signed accounts, analytical
review and management letters
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Accounting systems notes, previous years’
control questionnaires
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(2) Current audit files
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These should be compiled on a timely basis after
the completion of the audit and should contain:
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Financial statements
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Accounts checklists
Audit documentation
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Management accounts details
Reconciliations of management and financial
accounts
A summary of unadjusted errors
Report to partner including details of significant
events and errors
Review notes
Audit planning memorandum
Time budgets and summaries
Audit documentation
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Representation letter
Management letter
Notes of board minutes
Communications with third parties such as
experts or other auditors
• 3) Safe custody and retention of working papers
• Working papers are the property of the auditors. They
are not a substitute for, nor part of, the entity’s
accounting records.