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Katharine Bagshaw Effective Documentation
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Effective Documentation
Katharine Bagshaw
IFAC SMP Committee Member
Trainers’ Seminar
June 4, 2013
Kampala, Uganda
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Outline
• Standard-setter views
• Regulator observations
• Practitioner views
• The growth of audit documentation
• Audit documentation in Africa
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Standard-Setter Views
What’s the problem?
• ISA 230 on documentation is one of the shortest ISAs
• 9 requirements
• 22 specific requirements in other ISAs listed in the
appendix
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Standard-Setter Views
• Must be in detail (e.g. specific items sampled) and show
who did what and when (paragraph 9)
• Document discussions of significant matters,
inconsistencies, and departures from requirements
(paragraphs 10-12)
• The remainder covers matters arising after the audit report
is signed, and assembly of the file.
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Regulator Observations
• www.acra.gov.sg - Singapore’s Accounting and Corporate
Regulatory Authority
• www.pcaobus.org - The USA’s Public Company
Accounting Oversight Board
• www.asic.gov.au - Australia’s Securities and Investments
Commission
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Regulator Observations
• www.frc.org.uk - UK’s Financial Reporting Council
• Produced its 2012 annual inspection report last
Wednesday
– http://frc.org.uk/Our-Work/Publications/Audit-Quality-Review/Audit-
Quality-Inspections-Annual-Report-2012-13.aspx
• ICAEW’s QAD Audit Monitoring Report 2012
– www.icaew.com/~/media/Files/Technical/Audit-and-
assurance/audit/working-in-the-regulated-area-of-audit/audit-
monitoring-2012.pdf
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Regulator Observations – Common Themes
• Inefficient audit methodologies lead to over-auditing and
under-auditing
• Too much documentation in some established areas and
not enough in other difficult areas
• Little evidence of professional scepticism – insufficient
evidence of challenge
• Poor evidence of the link between risk analysis and
procedures performed – problems are identified but not
addressed
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Regulator Observations – Too Much and Not Enough
• Not enough showing the thought processes– but how do
you document a thought process?
• Sample sizes being cut, materiality levels being raised,
analytical procedures are not being used much - without
documentation for the justification of this – big issues
• Nothing at all being done in some low risk areas
• Too much in low risk areas and areas in which audit
procedures are well established
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Regulator Observations – Documenting Scepticism
• ISA 200: scepticism is an attitude including a questioning
mind, being alert to conditions which may indicate possible
misstatement, and a critical assessment of audit evidence
• Scepticism is not cynicism, it does not require distrusting
everything you see and hear. May assume documents are
genuine unless there is reason to suspect otherwise
• Scepticism specifically mentioned in ISAs on fraud, laws
and regulations, related parties
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Regulator Observations – Documenting Scepticism
• Scepticism is
– Challenging assumptions
– Actively considering the possibility of bias
– Not rebutting the presumption of fraud in revenue recognition too
easily
• Asking the client ≠ sufficient audit evidence
• Insufficient evidence of challenge to client assumptions
about impairments, going concern, and discount rates
used. Often, the challenge took place in meetings but was
not documented
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Help with Scepticism and Documentation
• http://www.icaew.com/en/technical/audit-and-
assurance/professional-scepticism
• Series of 11 videos produced by the UK’s FRC on
regulatory findings and in particular on audit
documentation, professional scepticism and group audits
featuring:
– John Kellas CBE: former KPMG partner and IAASB chair who
oversaw the Clarity Project
– Martyn Jones: Current ICAEW President, former Deloitte partner,
founder of ICAEW’s ISA Implementation group
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Help with Scepticism and Documentation
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Help with Scepticism and Documentation
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Practitioner Views
• Practitioners need help from professional bodies and
standard setters.
• Good quality checklists used judiciously are necessary
and improve audit efficiency and quality.
• Poor checklists used indiscriminately without thought are a
drain on audit efficiency and quality.
• New documentation requirements need to be clearly
thought out.
• Good quality methodologies need to be developed and
maintained.
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The Growth of Audit Documentation
Excessive documentation for ‘compliance’ purposes work is
real problem. It keeps auditors in the audit room and stops
them from engaging with the client. It is a product of:
• The requirements of auditing standards
• Over-engineered and poor audit methodologies
• The approach taken by regulators
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The Growth of Audit Documentation
• Poor documentation by auditors – keeping interesting but
irrelevant information on the file, full documents rather
than extracts and not making use of facilities for electronic
cross-referencing, for example
• Auditors, standard-setters and regulators have a role to
play in ensuring that compliance with audit documentation
requirements do not damage audit quality
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Audit Documentation in Africa
What are the issues?
What are the solutions?
Must enable an experienced auditor with no previous experience of the audit to understand the procedures, their results, significant issues and judgements (paragraph 8)
This we all know, largely common-sense, nothing very contentious
Regulators across the world complain about poor documentation
From the transcript: Standards are quite clear about the need for files to contain a sufficient record to enable an independent reviewer…to understand the audit and confirm that standards have been followed. But this should not be understood to mean that the files are mainly for the benefit of the Audit Inspection Unit; the primary role of documentation is to drive audit quality and assure the firm that an appropriate quality has been achieved. [Emphasis added]
From the transcript: Standards are quite clear about the need for files to contain a sufficient record to enable an independent reviewer…to understand the audit and confirm that standards have been followed. But this should not be understood to mean that the files are mainly for the benefit of the Audit Inspection Unit; the primary role of documentation is to drive audit quality and assure the firm that an appropriate quality has been achieved. [Emphasis added]
From the transcript: Standards are quite clear about the need for files to contain a sufficient record to enable an independent reviewer…to understand the audit and confirm that standards have been followed. But this should not be understood to mean that the files are mainly for the benefit of the Audit Inspection Unit; the primary role of documentation is to drive audit quality and assure the firm that an appropriate quality has been achieved. [Emphasis added]
for example Auditors, standard-setters and regulators have a role to play in ensuring that compliance with audit documentation requirements do not damage audit quality.
for example Auditors, standard-setters and regulators have a role to play in ensuring that compliance with audit documentation requirements do not damage audit quality.