Audit Documentation: SA 230

Audit documentation is a crucial aspect of the auditing process, providing a record of the procedures performed, evidence obtained, and conclusions reached. As defined by SA 230, “Audit Documentation” encompasses the working papers prepared or obtained by the auditor in connection with the performance of the audit. These documents serve multiple purposes, including aiding in planning and performance, facilitating supervision and review, and supporting the auditor’s opinion. Proper documentation ensures compliance with basic auditing principles, relevant laws, and the achievement of overall audit objectives.

“The auditor should document matters which are important in providing evidence that –the audit was carried out in accordance with the basic principles of Auditing, Laws applicable to the entity and conclusion as to achievement of overall audit objectives.”

Definition As per SA 230 “Audit Documentation is the record of audit procedures performed, relevant audit evidences obtained and conclusions the auditor reached (terms such as “Working Papers” or “Work papers” are also sometimes used.

Documentation refers to the working papers prepared or obtained by the auditor and retained by him, in connection with the performance of his audit. Working papers (Documents) may be related with a. Aid in the planning and performance of the audit, b. Aid in the supervision and review of the audit work and c. provide evidence of the audit work performed to support the auditor’s opinion.

Working papers must record a. audit plan and nature, timing and extant of procedures performed and b. Must also record conclusions drawn from the evidence obtained during the conduct of audit. The form and content of working papers are affected by matters such as : a. Nature of the engagement (Concurrent, Internal or Statutory), b. Format of Audit report (Conclusions out of Audit), c. Nature and Complexities of the client’s business, d. Nature and Condition of the client’s records and the degree of reliance on internal controls and finally e. The need of direction, supervision and review of work performed by the assistants.

To choose one out of several working papers available is a matter of facts and circumstances. Extant of documentation is a matter of professional judgement since it is neither necessary nor practical that every observation, consideration or conclusion is documented by the auditor in his working papers. All significant matters which requires the exercise of judgment together with the auditor’s conclusion thereon, should be included in the working papers. To improve audit efficiency, the auditor normally obtains and utilizes schedules, analyses and other working papers prepared by the client. In such circumstances, the auditor should satisfy himself that these working papers have been properly prepared. Example of such working papers re detailed analysis of important account receivables etc.

In case of recurring audits working paper files may be classified as permanent audit files (Which are updated periodically with information of continuing importance) and current audit files (which contain information relating to the audit of a single period.

A Permanent Audit file may include following documents:

• Information concerning the legal and organizational structure of the entity. In the case of a company, this includes the Memorandum and Articles of Association. In the case of a statutory corporation, this includes the Act and Regulation under which the corporation function
• Extracts or copies of legal documents, agreements and minutes relevant to audit.
• A record of the study and evaluation of the internal controls related to the accounting system. This might be in the form of narrative descriptions, questionnaires or flow charts (Or some combination thereof)
• Copies of published financial statements for previous years
• Copy of Management letter issued on matters which are of continuous relevance.
• Record of communication with the retiring auditor, if any, before acceptance of the appointment as auditor.
• Notes regarding significant accounting policies and
• Working Papers related to Significant Accounting observations of earlier years.

On the contrary the Current Audit File normally includes:

• Correspondence relating to acceptance of annual reappointment
• Extracts of important matters in the minutes of Board Meetings and General Meetings, as are relevant to period under audit
• Evidence of planning process (Defining Scope, Resources available i.e. Manpower and objectives) of the audit and the audit program )nature timing and extent of audit procedures to be performed.)
• Working Papers related with work performed by the assistants and related with supervision & review thereof.
• Copies of communication with other auditors, experts and other third parties.
• Copies of letters or notes concerning audit matters communicated to or discussed with the client including the terms of engagement and material weakness in relevant internal controls.
• Letter of representation or confirmation received from the client related with period under review
• Conclusions reached by the auditor concerning significant aspects of the audit, including the manner in which expectations and unusual matters, if any, disclosed by the auditor’s procedures were resolved and treated.
• Copies of the financial information being reported on and the related audit reports.
• Copies of the financial information being reported on and the related audit reports.

Legal Position as to ownership of Working Papers:

• Working Papers are the property of the auditor. The auditor may, at his discretion, make portions of or extracts from his working papers available to his client.
• The auditor should adopt reasonable procedures for custody and confidentiality of his working papers and should retain them for a period of time sufficient to meet the needs of his practices and satisfy any pertinent legal or professional requirements of record retention.

Some Important matter related to the documentation:

1. The audit file containing all the documentation should be assembled and completed within 60 days after the date of Audit Report.

2. The retention period for Audit File is 7 years and the Auditor should not delete or discard any documentation before the end of it’s retention period.

3. The duplicate, discarded or superseded documentation need not be retained.

4. Numbering and cross referencing of Audit documentation – is essential.

Working Papers related with audit of Companies registered under Companies Act, 2013:

“Working Papers – Schedule III”

1. Share Capital (ROC record and compliances). List of Share Holders holding more than 5%, shares held by promoters.

2. Secured Term Loans and Short Term Borrowings – Sanction Letters to identify noncurrent and current maturity, securities given and terms & conditions.

3. Deferred Tax Working including work sheets, previous income tax returns and current computation of income.

4. List of creditors – MSME / Non MSME (With Aging)

5. Stock Statements submitted to banks

6. Tax returns – TDS, TCS and GST

7. Actuarial Valuation for Gratuity and leave encashment

8. Title deeds for properties held in client’s name and not held in client’s name

9. Copy of Asset addition bills

10. Copies of Investments

11. Copies of FD receipts

12. Confirmation of Loan taken and Given

13. Stock working with reference to AS 2 and quantity working

14. Details of working director’s remuneration

15. Copies of BE (Bill of Entry) in respect of Imports and BL (Bill of Lading) in respect of Exports

16. RPT disclosures

17. Underlying working papers for Segment Reporting

“Working Papers – CARO 2020”

• Management Certificate regarding periodic verification of Fixed Assets and Inventory
• Copy of previous Cost Audit Report
• Copy of Internal Audit Report for period under review
• Management Representation as to Long Term / Short Term Investment

It has been a sad story of the profession that Audit may be conducted rigorously, but not much attention is paid to documentation and the disclosures. This is quiet evident from the speech of NFRA Chairperson.

The documentation collected and prepared is many times haphazard without having any sequence or without understanding the consequences. To give smile, we construct the house but to do not take efforts to do the finishing work – Everything will look in shambles rather than having a neat and clean image of the work done.

“The skill of an accountant can always be ascertained by an inspection of his working papers” Robert H. Montgomery.

Conclusion: Effective audit documentation is essential for providing a clear and comprehensive record of the audit process. By adhering to the principles outlined in SA 230 and maintaining well-organized working papers, auditors can ensure that their work meets professional standards and legal requirements. Proper documentation not only supports the auditor’s conclusions but also enhances the overall quality and reliability of the audit. Ultimately, meticulous record-keeping is a hallmark of a skilled auditor and a vital component of successful auditing practices.