Audit Recording (iSA 230-Documentation)

The auditor must record or document all the information gathered as audit evidence in forming an opinion on the financial statements. The evidence is recorded in the form of working papers which are prepared by the auditor or obtained during the audit. The working papers are retained by the auditors in connection with the performance of an audit. Audit working papers should always be sufficiently complete and detailed to enable an inexperienced auditor having no previous connection to the audit to ascertain work that was performed to support the conclusion reached. The auditor should record all relevant information known to him at the time, the conclusion reached based on that information and the views of management.

The need for good Working Papers

The reporting partner needs to satisfy himself that the work delegated by him has been properly performed. This is only possible by reviewing detailed working papers prepared by the audit staff who perform the work. This also aids in supervision and review of work done by audit assistants.
Working papers provide details of problems encountered together with evidence of work performed and conclusion reached. They can also serve as a good reference point for future audit.
preparation of working papers enables to auditor to adopt a methodical approach to his work.
Working papers assist in planning and performance of audit in future financial periods.
if sued for negligence, the auditor can use the working papers as evidence for work done.
Working papers can be used for training of audit staff. They contain audit programme and specimen schedules which audit assistants can refer to when conducting the audit.

Auditing guidelines do not define precisely, the form of working papers but it indicates what might typically be contained therein.

Information of continuing importance to the audit such as letter of engagement and memorandum of association.
planned audit approach as contained in the planning memorandum
auditors assessment of client’s accounting system, his review and evaluation of internal controls
Details of work carried out, not as of errors or exceptions noted and action taken together with conclusion drawn by audit staff.
Evidence that the work of staff has been properly reviewed.
Record of relevant balances and other financial info that is subject to the audit.
Analysis of significant ration and trends
Copies of communications with other auditors, expects and other third parties.
letters of representation received form management.

Working papers are divided into the current audit file (CAF) and the permanent audit file (PAF)

The Permanent Audit file

This contains documents and matters of continuing importance which are required for more than one financial period.

Statutory material governing the conduct of the audit e.g. for companies, the companies act Cap 486 and for quoted companies in nairobi Stock Exchange, the nSE booklet of regulation are required.
Rules and regulations of the entity e.g. articles of association or a partnership deed.
Copies of documents of continuing importance and relation to the auditors e.g. minutes of meetings that recorded the appointment of the auditor, guarantees and indemnities entered into.
Address of registered office and all other premises with a short description of the work carried at each of those premises.
Organizational chart showing the principal departments and subdivision thereof and names of officials and their responsibilities showing clearly the lines of authority.
A list of directors, their shareholding and service contracts.
A list of company’s advisors, bankers, lawyers, stock brokers and valuers.
An outline of history of the organization reserves and share capital.
Accounting policies used on material areas such as stock and depreciation.

The Current Audit File

This file contains matters pertinent to the current year’s audit and contains:

A copy of the accounts being audited which must be signed by the directors.
A file index showing contents of the file.
A detailed description of internal control system in form of flow charts, questionnaires or any other form of suitable documentation.
Audit programme showing the audit objective and planned audit procedures for each of the areas to be audited.
A schedule of each item in the balance sheet showing the balance at beginning of the year, changes during the year and balance at the end of the year. The schedule also shows details of work performed on each balance, the result and conclusion made.
A schedule of the items in the profit and loss account. It will show the details of work performed on each balance the result and conclusion reached.
A check list for compliance with statutory disclosure requirements and accounting standards.
A record of questions raised during the audit and those raised in the previous audit.
A schedule of important statistics such as net profit margin, liquidity ratios and composition of sales.
A record or an abstract form minutes of all director’s meetings and of any internal committee whose deliberations are important to the auditor.
The management letter setting out weakness of the internal control system.
Letters of representation obtained from client’s management.

What is Standardized working papers

This refers to a predetermined format of presenting and documenting audit findings formulated by individual audit firms e.g. check lists and specimen letters which are filled with standard wording and gaps left to fill in the relevant details of the client.

Advantages of standardized Working Papers

This improves the efficiency with which working papers are prepared because they will be used for many clients
They act on guidelines for instructions to audit staff and facilitate delegation of work.
They provide a means to control the quality of audit work by ensuring that minimum quality standards are maintained.
Ensures that all relevant issues in the audit are addressed.

Disadvantages of Standardized Working Papers

it is not appropriate to follow mechanically, a standardized approach to the conduct and documentation of audit work as the auditor in some cases will need to exercise his own judgment.
The initiative of auditor staff may be restricted because the need to exercise judgment in preparing working papers is eliminated.
The client staff may become familiar with the method and perpetuate fraud in areas not covered by the standard working papers.
The audit work becomes very mechanical with use of standardized working papers.

Audit Recording (iSA 230-Documentation)

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