Audit Documentation

PCAOB Auditing Standard no.3PCAOB Auditing Standard no.3

IntroductionThis standard establishes general This standard establishes general requirements for documentation the requirements for documentation the auditor should prepare and retain in auditor should prepare and retain in connection with engagements connection with engagements conducted pursuant to the standards conducted pursuant to the standards of the Public Company Accounting of the Public Company Accounting Oversight Board (“PCAOB”)Oversight Board (“PCAOB”)

This standard does not replace This standard does not replace specific documentation requirements specific documentation requirements of other standards of the PCAOB.of other standards of the PCAOB.

Effective Date

• This standard is effective for audits of This standard is effective for audits of financial statements, which may financial statements, which may include an audit of internal control include an audit of internal control over financial reporting, with respect over financial reporting, with respect to fiscal years ending on or after to fiscal years ending on or after November 15, 2004.November 15, 2004.

• This standard supersedes SAS No. 96 This standard supersedes SAS No. 96 of of Audit documentation.Audit documentation.

Objectives Audit documentation is the written record of the basis for the Audit documentation is the written record of the basis for the

auditor’s conclusions that provides the support for the auditor’s conclusions that provides the support for the auditor’s representations.auditor’s representations.

Audit documentation facilitates the planning, performance, Audit documentation facilitates the planning, performance, and supervision of the engagement.and supervision of the engagement.

Audit documentation provides the reviewer with written Audit documentation provides the reviewer with written documentation of the evidence supporting the auditor’s documentation of the evidence supporting the auditor’s significant conclusions.significant conclusions.

Audit documentation is reviewed by members of the Audit documentation is reviewed by members of the engagement team performing the work and might be reviewed engagement team performing the work and might be reviewed by others.by others.

Requirements of Audit Documentation

The auditor must prepare audit The auditor must prepare audit documentation in connection with each documentation in connection with each engagement conducted pursuant to the engagement conducted pursuant to the standards of the PCAOB. Audit standards of the PCAOB. Audit documentation should be prepared in documentation should be prepared in sufficient detail to provide a clear sufficient detail to provide a clear understanding of its purpose, source and understanding of its purpose, source and the conclusions reached. the conclusions reached.

Examples of Audit documentation include Examples of Audit documentation include memoranda, confirmations, schedules, memoranda, confirmations, schedules, correspondences, audit programs and correspondences, audit programs and letters of representation. Audit letters of representation. Audit documentation may be in the form of paper, documentation may be in the form of paper, electornic files or other media.electornic files or other media.

The auditor must document the procedures The auditor must document the procedures performed, evidence obtained and performed, evidence obtained and conclusions reached with respect to relevant conclusions reached with respect to relevant financial statement assertions. Audit financial statement assertions. Audit documentation must clearly demonstrate that documentation must clearly demonstrate that the work was in fact performed.the work was in fact performed.

Audit documentation must include Audit documentation must include information the auditor has identified relating information the auditor has identified relating to significant findings or issues that is to significant findings or issues that is inconsistent with the auditor’s final inconsistent with the auditor’s final conclusions. conclusions.

o Auditors who are new to an Auditors who are new to an engagement and review the prior engagement and review the prior year’s documentation to understand year’s documentation to understand the work performed as an aid in the work performed as an aid in planning and performing the current planning and performing the current engagement.engagement.

o Audit documentation demonstrate Audit documentation demonstrate that the underlying accounting that the underlying accounting records agreed or reconciled with the records agreed or reconciled with the financial statements.financial statements.

Benefits of Audit Documentation

Documentation of auditing procedures that Documentation of auditing procedures that involve the inspection of documents or involve the inspection of documents or confirmations, including test of details, test confirmations, including test of details, test of operating effectiveness of controls, and of operating effectiveness of controls, and walkthroughs, should include identification walkthroughs, should include identification of the items inspected. of the items inspected.

The auditor must document significant The auditor must document significant findings or issues, actions taken to address findings or issues, actions taken to address them, and the basis for the conclusions them, and the basis for the conclusions reached in connection with each reached in connection with each engagement.engagement.

The auditor must identify all significant The auditor must identify all significant findings or issues in an findings or issues in an engagement engagement completion document. completion document.

Documentation of Specific Matters

Examples of Significant findings or issues

Significant matters involving the selection, Significant matters involving the selection, application, and consistency of accounting application, and consistency of accounting principles, including related disclosures. It principles, including related disclosures. It includes unusual transactions, accounting includes unusual transactions, accounting estimates, and uncertainties as well as estimates, and uncertainties as well as related management assumptions.related management assumptions.

Significant changes in the assessed level Significant changes in the assessed level of audit risk for particular audit areas and of audit risk for particular audit areas and the auditor’s response to those changes.the auditor’s response to those changes.

Audit adjustmentsAudit adjustments: An audit adjustment is a : An audit adjustment is a correction of a misstatement of the financial correction of a misstatement of the financial statements that was or should have been statements that was or should have been proposed by the auditor, whether or not proposed by the auditor, whether or not recorded by the management, that could, either recorded by the management, that could, either individually or when aggregated with other individually or when aggregated with other misstatements, have a material effect on the misstatements, have a material effect on the company’s financial statements.company’s financial statements.

Results of auditing procedures that indicate a Results of auditing procedures that indicate a need for significant modification of planned need for significant modification of planned auditing procedures, the existence of material auditing procedures, the existence of material misstatements, omissions in the financial misstatements, omissions in the financial statements, the existence of significant statements, the existence of significant deficiencies, or material weaknesses in internal deficiencies, or material weaknesses in internal control over financial reporting.control over financial reporting.

Any matters that could result in modification of Any matters that could result in modification of the auditor’s report.the auditor’s report.

The auditor must retain audit documentation for seven The auditor must retain audit documentation for seven years from the date the auditor grants permission to use years from the date the auditor grants permission to use the auditor’s report in connection with the issuance of the the auditor’s report in connection with the issuance of the company’s financial statements (company’s financial statements (report release datereport release date), ), unless a longer period of time is required by law.unless a longer period of time is required by law.

Prior to the report release date, the auditor must have Prior to the report release date, the auditor must have completed all necessary auditing procedures and obtained completed all necessary auditing procedures and obtained sufficient evidence to support the representations in sufficient evidence to support the representations in auditor’s report. A complete and final set of audit auditor’s report. A complete and final set of audit documentation should be assembled for retention as of a documentation should be assembled for retention as of a date not more than 45 days after the report release date date not more than 45 days after the report release date ((documentation completion datedocumentation completion date).).

Retention of and Subsequent Changes to Audit Documentation

Audit documentation must not be Audit documentation must not be deleted or discarded after the deleted or discarded after the documentation completion date, documentation completion date, however, information may be added.however, information may be added.

The office of the firm issuing the The office of the firm issuing the auditor’s report is responsible for auditor’s report is responsible for ensuring that all audit ensuring that all audit documentation sufficient to meet the documentation sufficient to meet the requirements of this standard is requirements of this standard is prepared and retained.prepared and retained.

Multi-Location Audits and Using the Work of Other Auditors

The office issuing the auditor’s report must The office issuing the auditor’s report must obtain, and review and retain, prior to the report obtain, and review and retain, prior to the report release date, the following documentation related release date, the following documentation related to the work performed by other auditors to the work performed by other auditors (including auditors associated with other offices of (including auditors associated with other offices of the firm, affiliated firms, or non-affiliated firms):the firm, affiliated firms, or non-affiliated firms):

A list of significant fraud risk factors, the A list of significant fraud risk factors, the auditor’s response, and the result of the auditor’s auditor’s response, and the result of the auditor’s related procedures.related procedures.

Any findings affecting the consolidating or Any findings affecting the consolidating or combining of accounts in the consolidated combining of accounts in the consolidated financial statements.financial statements.

Sufficient information to enable the Sufficient information to enable the office issuing the auditor’s report to office issuing the auditor’s report to agree or to reconcile the financial agree or to reconcile the financial statement amounts audited by the other statement amounts audited by the other auditor to the information underlying auditor to the information underlying the consolidated financial statements.the consolidated financial statements.

A schedule of audit adjustments, A schedule of audit adjustments, including a description of the nature and including a description of the nature and cause of each misstatement.cause of each misstatement.

All significant deficiencies and material All significant deficiencies and material weaknesses in internal control over weaknesses in internal control over financial reporting, including a clear financial reporting, including a clear distinction between those two distinction between those two categories.categories.

This standard required the principal This standard required the principal auditor to maintain specific audit auditor to maintain specific audit documentation when he or she decided not documentation when he or she decided not to make reference to the work of another to make reference to the work of another auditor.auditor.

The Principal auditor is required to review The Principal auditor is required to review the documentation of the other auditor to the documentation of the other auditor to the same extent and in the same manner the same extent and in the same manner that the audit work of all those who that the audit work of all those who participated in the engagement is participated in the engagement is reviewed.reviewed.

Thank You