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Katharine Bagshaw Effective Documentation
The document discusses views on effective audit documentation from standard-setters, regulators, and practitioners. It notes that while audit documentation requirements are intended to improve audit quality, excessive documentation focused only on compliance can actually undermine quality by taking up too much audit time. Regulators find issues like insufficient evidence of professional skepticism and inconsistencies between risk assessments and procedures. The document provides resources on documenting skepticism and offers that stakeholders must work together to balance documentation needs with practical application in audits.
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Katharine Bagshaw Effective Documentation
- 1. Page 1 |Confidential and Proprietary Information Effective Documentation Katharine Bagshaw IFAC SMP Committee Member Trainers’ Seminar June 4, 2013 Kampala, Uganda
- 2. Page 2 |Confidential and Proprietary Information Outline • Standard-setter views • Regulator observations • Practitioner views • The growth of audit documentation • Audit documentation in Africa
- 3. Page 3 |Confidential and Proprietary Information 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
- 4. Page 4 |Confidential and Proprietary Information 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.
- 5. Page 5 |Confidential and Proprietary Information 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
- 6. Page 6 |Confidential and Proprietary Information 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
- 7. Page 7 |Confidential and Proprietary Information 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
- 8. Page 8 |Confidential and Proprietary Information 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
- 9. Page 9 |Confidential and Proprietary Information 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
- 10. Page 10 |Confidential and Proprietary Information 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
- 11. Page 11 |Confidential and Proprietary Information 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
- 12. Page 12 |Confidential and Proprietary Information Help with Scepticism and Documentation
- 13. Page 13 |Confidential and Proprietary Information Help with Scepticism and Documentation
- 14. Page 14 |Confidential and Proprietary Information 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.
- 15. Page 15 |Confidential and Proprietary Information 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
- 16. Page 16 |Confidential and Proprietary Information 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
- 17. Page 17 |Confidential and Proprietary Information Audit Documentation in Africa What are the issues? What are the solutions?
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Editor's Notes
- #4 Must enable an experienced auditor with no previous experience of the audit to understand the procedures, their results, significant issues and judgements (paragraph 8)
- #5 This we all know, largely common-sense, nothing very contentious
- #6 Regulators across the world complain about poor documentation
- #12 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]
- #13 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]
- #14 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]
- #16 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.
- #17 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.