Planning & Risk Assessment (3): Audit Documentation Flashcards
Why is audit documentation important?
Explanation
Includes 4 things
Audit documentation supports the auditor’s opinion and is required by the International Standards on Auditing (ISAs). It should be understandable by an experienced auditor and includes:
- Audit strategy & planning
- Audit procedures
- Audit evidence
- Conclusions
What should an experienced auditor understand from audit documentation? (4)
The auditor should be able to understand:
- The nature, timing, and extent of procedures to comply with ISAs and legal requirements.
- The results of the procedures and evidence gathered.
- Conclusions reached on significant matters, including:
- Single significant matters (e.g., internal controls)
- Financial statements as a whole
What types of files are used in audit documentation? (2)
Audit documents are categorized into:
- Permanent Files: Contain historical data of continuing relevance.
- Current Files: Relate specifically to the current year’s audit, including both interim and final documents.
What documents are typically found in permanent files? (5)
Permanent files may include:
- Memorandum and articles of association
- Organization charts
- Lease or purchase documents
- Accounting manual
- Control system flowcharts
What documents are typically found in current files? (5)
Current files may include:
- Financial statements and the auditor’s report
- Audit strategy and audit plan
- Working trial balance
- Adjustments to trial balance
- Supporting working papers
What are the typical features of working papers? (5)
Working papers should include:
- Heading with client name and year-end date
- Title of working paper
- Actual date
- Indexing and cross-referencing to other working papers and the audit plan
- Marks to show the work done (e.g., @ for additions, V for validation)
Who owns audit documents?
Audit documents are the property of the auditor but must not be shown to anyone without the client’s consent, except under specific ethical circumstances.
What are the requirements for document custody? (4)
The firm must ensure documents are:
- Kept confidential and in safe custody
- Protected from unauthorized amendment
- Accessible and retrievable
- Kept for the required time period
What are the key components of planning and risk assessment in auditing? (7)
- Understand the business
- Assess risk (AR = IR x CR x DR)
- Adopt professional skepticism
- Understand materiality and fraud
- Understand substantive procedures
- Create audit strategy and plan
- Rely on the work of others
What are internal controls?
Explanation
They ensure the business is?
Internal controls are rules, policies, and procedures designed by management to prevent material misstatements or detect them in time for remedial actions. They ensure the business is:
- Operating effectively and efficiently
- Complying with relevant laws and regulations
- Providing reliable financial reporting
Who is responsible for internal controls? (3)
It is the responsibility of:
- those charged with governance,
- management, and
- other personnel to design, implement, and monitor internal controls.
What are the five key components of internal controls?
- Control Environment
- Risk Assessment Procedures
- Information System Relevant to Financial Reporting
- Control Activities
- Monitoring of Controls
What does the control environment encompass? (6)
It relates to the culture and tone of the organization, and depends on:
- Communication and enforcement of integrity and ethical values
- Commitment to competence
- Participation by those charged with governance
- Management’s philosophy and operating style
- Organizational structure
- Assignment of authority and responsibility
- Human resource policy & practices
Often known as the ‘tone at the top’
What is involved in the risk assessment process? (1+5)
The client’s process for identifying and responding to business risks, including:
- Changes in operating environment
- New personnel
- Rapid growth
- New or revamped information systems
- Corporate restructuring
What constitutes the information system relevant to financial reporting & communication?
What does relevant to financial reporting mean?
What does communication mean>
It includes the infrastructure, software, people, procedures, and data necessary for preparing financial statements and facilitating decision-making.
‘Relevant to financial reporting’ means sufficient to prepare the financial statements and allow relevant and reliable decision making.
‘Communication’ means how well people understand their roles, and can include training and policy manuals, and open channels of communication.
