F8-06 Documentation

Session 6
Documentation
FOCUS
This session covers the following content from the ACCA Study Guide.
B. Planning and Risk Assessment

6. Audit planning and documentation
g) Explain the need for, and the importance of, audit documentation.
h) Describe the form and contents of working papers and supporting
documentation.
i) Explain the procedures to ensure safe custody and retention of
working papers.
Session 6 Guidance
Learn the objective, purpose and definition of working papers (s.1).
Understand the nature of the factors which determine the form, content and extent of audit
documentation (s.2.1), how standardisation benefits the audit (s.2.2) and the techniques used in
documentation (s.2.3).
(continued on next page)

F8 Audit and Assurance (INT) Becker Professional Education | ACCA Study System
Ali Niaz - ali.niaz777@gmail.com

VISUAL OVERVIEW
Objective: To describe the procedures for documenting the audit process.
DOCUMENTATION
(WORKING PAPERS)
• Objective, Definition and Scope
• Purpose
• Importance
FORM
• Factors to Consider
• Standardisation
• Documentation Techniques
CONTENT
• Permanent v Current Audit Files
• Audit Section Structure
• Significant Matters
• Assembly of Working Papers File
CONFIDENTIALITY, SAFE CUSTODY,

RETENTION AND OWNERSHIP
• Confidentiality and Safe Custody
• Retention
• Ownership
Session 6 Guidance
Appreciate the distinction between permanent and current documentation and how working
papers may be assembled (s.3).
Understand the need for auditors to maintain the confidentiality and safe custody of working
papers (s.4.1).
Learn the principles for retention and ownership of working papers (s.4.2, s.4.3).
© 2014 DeVry/Becker Educational Development Corp. All rights reserved. 6-1

Session 6 • Documentation F8 Audit and Assurance (INT)
1 Documentation
The objective of the auditor is to produce working papers that

provide:
< a sufficient and appropriate record of the basis for the auditor's
report; and
< evidence that the audit was planned and performed in accordance
with ISAs and applicable legal and regulatory requirements.
1.1 Objective, Definition and Scope

< Working papers include ethical considerations, planning,
audit programmes, analysis, briefing documents, work Working papers—the
schedules, reliance on experts, summaries of significant record (paper, film,
matters, confirmations, management letters, reviews, electronic or other
checklists, representation letters and other correspondence media) of audit
(including e-mails, text messages, notes of oral or electronic procedures performed,
conversations) relating to all matters that may be considered relevant audit
significant. evidence obtained, and
conclusions the auditor
reached.
1.2 Purpose
The purposes served by the documentation of the audit process
include:
< Increasing the economy, efficiency and effectiveness of the
audit.
< Assisting the audit engagement partner (and team) in the
planning and performance of the audit (e.g. in analysing
information to
assess risks).
< Facilitating the supervision and review of audit work (e.g. in
briefing and instructing assistants; engagement partner can
agree that the work has been fully carried out in accordance
with the audit plan).
< Recording the audit evidence generated by the audit
procedures that are undertaken to justify and support the
auditor's opinion.
< Retaining a record of matters of continuing significance (e.g.
to assist in the planning of future audits).
< Ensuring the audit team can be held accountable for its work.
< Enabling an experienced auditor, having no connection with
the audit, to understand the audit process and its conclusions.
< Enabling internal (e.g. by an independent partner) and
external (e.g. by the ACCA as the RSB) quality control review
procedures.
6-2 © 2014 DeVry/Becker Educational Development Corp. All rights reserved.

F8 Audit and Assurance (INT) Session 6 • Documentation
1.3 Importance
< Both the objectives and the purposes of working papers
encompass their importance. Initially, they provide a
framework for planning the audit, then for conducting and
recording the audit and finally for showing the key evidence
that supports the conclusions reached and the audit opinion.
Without working papers, auditors would, for example, find
it very difficult to be able to justify in a court of law their
approach, the work carried out and the conclusions reached on
an audit.
2 Form
< Working papers should be prepared to enable an experienced
auditor, having no previous connection with the audit, to
understand:
= the nature, timing and extent of the audit procedures
carried out to achieve the audit objectives;
= the results of those procedures and the evidence obtained
to support the conclusions reached; and
= significant matters arising and the conclusions reached in
dealing with them.
2.1 Factors to Consider

< In determining the form, content and extent of audit
documentation, the following factors (not inclusive) should be
considered:
= The nature of the engagement (e.g. listed, private or public
sector entity) and procedures to be performed to support
the report given (e.g. audit, assurance, review).
= The nature, size and complexity of the entity, its
environment and controls.
= The identified risks of material misstatement in the financial
statements.
= The reliance to be placed on control effectiveness.
= The extent of judgement required in carrying out the work
and evaluating the results.
= The audit methodology and tools used (e.g. computer-
assisted audit techniques).
= Standardisation.
= The extent of schedules, analyses and other documentation
prepared by the entity.
= The significance of the evidence obtained.
= The nature and extent of exceptions identified.
= The need and extent for direction, supervision and review of
tasks assigned to assistants.
= The need to direct, supervise and review the audit team
(see Session 7).

2.2 Standardisation
< It is common practice for audit firms to use standard pre-
printed documentation on audit engagements. For example:
= Audit completion disclosure and other checklists.
= Internal Control Questionnaires/Evaluation Questionnaires.
= Audit programs.
= Specimen letters (e.g. management representation letters—
see Session 20).
= Indices for standard organisation of working papers.
Example 1 Standardisation
Suggest THREE advantages and THREE disadvantages of standardising audit working papers.
Solution
Advantages:
Disadvantages:
< Wherever standard documentation is used it is essential that

the documentation is:
= tailored for each individual client (e.g. work programmes
to address assessed risks; representation letters to reflect
different circumstances); and
= kept up-to-date for changes in ISA, IFRS, laws and
regulations (e.g. GAAP checklist, engagement letters).

2.3 Documentation Techniques
+/– +/– +/–
Narrative notes By far the most common way of recording information (e.g. business
and detail history, processes, controls, interviews, work done, results, reviews).
Graphics Covers a wide range of charting facilities to record information (e.g.
flowcharting of systems, organisation charts, graphing trends, bar charts,
pie charts, etc).
Questionnaires Varied, with the most common being internal control questionnaires (ICQs)
and internal control evaluation questionnaires (ICEQs) to assist the auditor
to understand the design of appropriate controls and how they have been
implemented.
Checklists Used extensively to record set procedures (e.g. pre-printed work
programmes, analytical review, going concern, IFRS disclosures) and to
demonstrate that key procedures have been carried out (e.g. for client
acceptance, independence review, planning, completion and partner review).
Electronic media Now used extensively as audit tools (procedural, administration and
technical) and to produce audit documentation. Examples include
groupware, general word processing, spreadsheets, databases, graphics,
flowcharting, specialised audit programme and working paper software,
charting and analysis. These are not only in narrative and diagrammatic
form, but may also contain image and video in a knowledge base format.

3 Content
3.1 Permanent v Current Audit Files

< For recurring audits, the working papers are usually split
between two main files—the permanent audit file (PAF) and
the current audit file (CAF).
< Both files may have subdivisions dealing with specific matters
because of the volume of information (especially if paper-
based). For example, the PAF may have a separate file on
systems and controls and the CAF, or a separate file for
receivables' circularisation.
< Correspondence is often filed separately and for group audits
(not in the syllabus) there will be a separate consolidation file.
< The PAF contains documents that are of a permanent
nature related to the audit and the client's business, are of
continuing importance to the audit process and provide a
history of significant audit related matters. The CAF contains
information that is of direct relevance to the current audit (at
whatever stage).
< There will be only one PAF set (or electronic knowledge-base
equivalent). However, there will be a CAF for each stage of
the audit (interim, year end, final) for each year.
Example 2 Working Papers
Suggest the audit working papers which you would expect to be filed as "permanent" and
"current".
Solution

< Standard indices may be used for both permanent and current
audit files. These are usually tailored (e.g. by circling the
references used).*
*Alternative
Illustration 1 Current Audit referencing systems
Index File might include separate
sections for interim
A Audit control papers audit working papers,
A1 Financial statements systems work or
A2 Audit completion checklist
analytical procedures.
A3 Review schedules
A4 Points forward to next year
A5 Time record and budget
B Overall audit plan
C Intangible assets
D Tangible non-current (fixed) assets
E Investments
F Inventories (Stock)
G Receivables (Debtors)
H Cash
J Payables (Creditors)
K Provisions and contingencies
L Taxation
M Capital and reserves
N Statement of comprehensive income
P Revenue
Q Purchases
R Wages and salaries
S Extended trial balance and adjustments to profit
3.2 Audit Section Structure

< On every individual working paper, it is standard procedure
to record (usually as the header to each paper or written as a
header on documents provided by the client):
= Client name
= Year end
= Subject of working paper (e.g. "Existence of non-current
assets")
= Schedule reference
= Date of preparation
= Preparer's identification (e.g. initials)
= Date of review
= Identification of reviewer (e.g. initials)

< An audit section (e.g. receivables, revenue, non-current

assets) may include:
= A "lead" schedule showing the makeup of the audited
balance together with the comparative amounts for the
*See Session 22 for a
prior year.* typical lead schedule
= A section summary and conclusion outlining the audit for non-current assets.
objectives for the section, any significant matters arising
during the audit and the conclusion on the section.
Illustration 2 Conclusions
The work performed has been carried out in accordance with the audit strategy
and audit plan (as adjusted).
The work performed and the results obtained have been adequately documented.
Any revision to the audit plan, risk assessments and materiality have been
detailed on Schedule XX and approved by the partner.
Matters outstanding have been detailed on Schedule XX for action by the partner.
In my (audit assistant's) opinion, this audit section is fairly stated subject to the
matters noted on Schedule XX.
= A schedule showing the basis of accounting and accounting

policy used.
= A work programme listing the audit procedures to be
performed. Usually, each test or group of tests will
*Work carried out
be related to a particular financial statement assertion
should be indicated
(see Session 15). using "audit ticks",
= A test lead schedule stating, for example, the objective of a key to what such
the test, the sampling approach, the work done, matters ticks mean, and
arising during the test and their resolution, and the appropriated cross-
conclusion. references to other
= Test supporting schedules showing the work done, how it supporting schedules.
was done and the matters arising.*

Illustration 3 Sample Working Paper
The following is a supporting schedule showing the work completed by the

auditor when testing the client's depreciation charge for non-current assets:
Client: Hawk Co Prepared by: M.C Date: 17 Feb 2015

Period: Y/e 31 Dec 2014 Reviewed by: Date:
Subject: Non-current assets deprecation reconciliation
$ $
Y/e 31 Dec 2013 Charge
Plus: Effect of 2014 Additions: 64,520 α
Warehouse equipment $41,600  @ 20% α 8,320
Delivery vehicles $31,950  @ 25% α 7,990
Motor cars $19,709  @ 33 ⁄3% α
1
6,570
Fixtures and fittings $17,202  @ 10% α 1,720
Less: Effect of 2014 Disposals

Warehouse equipment $18,250 d @ 20% α (3,650)
Delivery vehicles $11,570 d @ 25% α (2,890)
Motor cars $10,800 d @ 33 ⁄3% α
1
(3,600)
Fixtures and fittings $2,124 d @ 10% α (210)
78,770
Difference (immaterial) 330
Y/e 31 Dec 2014 Charge 79,100
Key
α Agreed to prior year accounts
 Per schedule of additions
d Per schedule of disposals

3.3 Significant Matters

< All significant matters must be clearly recorded, including the
detail of discussions with appropriate client personnel. Where
such detail is to be relied upon in reaching a conclusion on
a significant matter, a written representation from the client
must be obtained (see Session 20).
< Examples of significant matters include:
= matters that result in material risks (revenue is always
considered a significant risk, so detailed notes on the sales
system and the risks involved must always be made);
= details indicating that the financial statements may be
materially misstated;
= the need to revise previous assessments of risks and
material misstatements;
= factors that cause difficulty in applying ISA; and
= findings that could result in a modification to the auditor's
report and the reasons why, or why not, it was modified.*
*The list of examples of significant matters is not an exhaustive

list. Other examples are given throughout this study system of
what must be documented (e.g. ethics, laws and regulations,
oral communications, planning, engagement team discussions on
potential for fraud).
< Where the auditor is aware of information that contradicts

or is inconsistent with conclusions reached on a significant
matter, details of how that contradiction or inconsistency was
dealt with must be recorded.
< Any necessary departure from applying ISAs must be
recorded, including the reasons why and how the audit
objective was achieved under the circumstances.
< It is usual for details of significant matters and how they
were addressed to be recorded in a summary document
(e.g. completion memorandum, partner review notes—see
Session 29).

3.4 Assembly of Working Papers File

< All matters that support the audit opinion must be on file and
the file reviewed and signed off before the auditor signs the
audit report. Any matters of an administrative nature should
normally be concluded within (as suggested by ISA 230 Audit
Documentation) 60 days of the auditor's report being signed.
Such matters include:
= deleting or discarding unnecessary documentation;
= sorting, collating and cross-referencing documentation; and
= signing off completion for assembly of file.
< After final assembly, the auditor should not delete audit
documentation until the completion of the retention period
(see next section). If modification is required (after final
assembly) the following must be documented:
= the specific reasons for modification;
= when and by whom; and
= the impact, if any, on the auditor's report.
< If it is necessary after the date of the auditor's report for the
auditor to perform further procedures or revise the original
conclusion (e.g. facts impacting the audit report became
known after the report was signed), the following must be
recorded in the file:
= the reasons why the changes were necessary;
= additional audit procedures performed, evidence obtained,
conclusions reached; and
= when and by whom the updating was made and a review
carried out.

4 Confidentiality, Safe Custody, Retention

and Ownership
As part of the requirements on quality control, auditors should

maintain the confidentiality and safe custody of working papers.
4.1 Confidentiality and Safe Custody

< Practical procedures include:
= locked cabinets or rooms at the clients for hardcopy data
(although second keys may be held by the client);
= physical keys and logical passwords to prevent access to
computers for electronic data (the risk then is that the
laptop may be stolen); and
= secure backup and encryption of data.
< Electronic documentation may be particularly susceptible to
corruption or loss and should be backed up (e.g. to a CD/USB/
HD drive) on a regular basis (e.g. at lunchtime and/or the
end of each working day). The backup medium must then be
made secure.
< Where secure access to a file server at the auditor's office is
available, the backup could be made direct to that office. If
secure access cannot be guaranteed, then the data should
be encrypted. Backing up to the office facilitates early/
continuous review of the file by the manager/partner.
< IT systems at the auditor's office must also be secure.
General IT controls should therefore apply re access to data,
security of data, etc.
< The need for the confidentiality and security of working papers
(and client data) should be part of the terms and conditions of
employment of audit staff and considered a serious offence if
breached.
< Common sense must be applied when considering the security
of data (electronic or hard copy). For example:
= do not leave working papers unattended at the client;
= do not leave working papers in a car when it is unattended;
and
= do not put working papers in luggage to be checked-in at an
airport.
Working papers should be retained for a period sufficient to meet

the needs of the audit practice and in accordance with legal and
professional requirements. The IAASB requires at least five years.

4.2 Retention*
4.2.1 General Considerations
< Legal requirements (e.g. accounting records must be *ISA 230 only sets out
maintained for three years for private companies and six years general principles. It
for other companies in the UK). does not suggest a
< General position in law governing the period of time in which minimum or maximum
period for retention
actions may be brought in a court of law (e.g. six years for
nor how ownership is
actions based on contract in the UK). determined.
< Requirements for compiling tax returns (e.g. assessments may
be made six years after the period to which they relate).
< Likelihood of seeking quotation on a recognised stock
exchange—previous six years are required to be reported on
in UK.
4.2.2 ACCA Recommended Minimum Period

< Audit working papers—seven years.
< Tax files—seven years and then returned to client (or former
client).
4.3 Ownership
4.3.1 General Principles
< Working papers are the auditor's property and clients have no
rights to demand access.
< Portions of or extracts from working papers may be made
available to the client at the discretion of the auditor. (They
are not a substitute for the client's accounting records.)
< All documents relating to clients are confidential.
< A client may require the auditor to disclose documents which
belong to the client (only) to a third party.
4.3.2 Determining Ownership

< The primary consideration is the contract with client, agreed
and evidenced in the engagement letter.
< If there is no specific agreement, consider:
= the capacity in which members act, for example as
principals (auditing services) or agents (tax compliance);
and
= the purpose for which documents and records exist or are
created (e.g. to support the audit opinion).

Summary
< Working papers should provide a record of the basis for the auditor's report and evidence
that the audit was planned and performed in accordance with ISAs and legal and regulatory
requirements.
< Documentation techniques include narrative notes, graphics, questionnaires and checklists
(in paper and/or electronic media).
< The permanent audit file contains information that is of continuing importance to the audit
and provides a history of significant audit matters.
< The current audit file (CAF) contains information that is relevant to the audit for the current
period and is usually split into stages (e.g. interim, year-end and final).
< Assembly of working papers should be completed within 60 days of the auditor's report
being signed.
< Working papers should be retained for a period sufficient to meet the needs of the audit firm
and in accordance with legal and professional requirements (e.g. ACCA recommends seven
years minimum).
< Working papers are the property of the auditor.
Session 6 Quiz
Estimated time: 15 minutes
1. Define working papers and describe why auditors document the audit process. (1.1)
2. List and describe the FIVE documentation techniques. (2.3)
3. List the typical content of a permanent audit file (PAF). (3.1)
4. True or false. Clients can demand to see the contents of the auditor's working papers. (4.3)
Study Question Bank

Estimated time: 40 minutes
Priority Estimated Time Completed
Q9 Working papers 40 minutes
Note: You may wish to do this question after you have completed the three sessions on planning,
understanding the entity and inventory.

Session 6
EXAMPLE SOLUTIONS
Solution 1—Standardisation
Advantages:
Preparation and review is more efficient when audit files, sections
and documents in them, are presented in a systematic manner.
It helps to familiarise junior staff with standard procedures (e.g.
attending physical inventory counting and requesting direct
confirmations from customers).
Similarly, it facilitates direction (and delegation), supervision
and review.
It provides a means of quality control by requiring a consistent
approach to all audits and ensuring that essential procedures are not
overlooked.
It provides a consistent approach to specific audit functions (e.g.
IFRS checklist).
Disadvantages:
A "mechanical" approach may lead to a lack of appreciation of test
objectives and the implications of errors and deviations found.
Adopting a "standard approach" may stifle initiative and discourage
the exercise of professional judgement.
Standard programs may result in a "bare minimum" attitude.
It may be inappropriate to follow set procedures for a particular
client (e.g. one with subscription income rather than sales revenue).
Audit risk increases when there is a failure to tailor the audit
approach to the client's circumstances.
Note: Only three advantages and three disadvantages are required.

Solution 2—Working Papers
Permanent Audit File
Permanent audit files are usually broken into sections, for example:
< General business information
< Systems and control documentation
< Accounts and financial statements information
< Statutory and legal documentation
< Job administration
< Planning documentation
The content includes:

< Information concerning the legal structure of the entity (e.g.
Memorandum and Articles of Association).
< Major shareholders, debentures, debt structure, investments.
< Detail of the business environment, the operating industry, nature
and history of client's business, locations, products, key suppliers,
key customers, subcontractors, employees.
< Organisational and management structure. Governance structure
including audit committee. Main contacts in management and other
key staff related to the audit.
< Group structure, group auditors, other auditors (a separate file would
normally be kept detailing group audit procedures and detail).
< Structure of key departments (e.g. finance, treasury, internal audit).
< Major suppliers, customers—turnover, terms of trade, imports,
exports.
< Detail, evaluation and analysis of:
= control environment;
= risk assessment procedures;
= information systems; and
= control activities and control monitoring.
< Rolling analysis of risks, key performance indicators and risk
management.
< Main accounting and other key records, showing where kept and of
what type (e.g. hand-written, computerised).
< Major assets and liabilities.
< Previous financial statements, auditor's reports and supporting
details if modified.
< Principal accounting policies and any IFRS not applicable.
< New client checklist, other legal/regulatory documents for accepting
a new client.
< Major laws and regulations under which the entity operates,
including regulatory reporting requirements (e.g. charities, banks,
environmental, health and safety).
< Known related parties and history of transactions.
< Previous partner review notes, matters for the attention of the
partner.
< Previous reports to management (of weaknesses found in the
accounting system).
< Previous reports and minutes of discussions with those charged with
governance.
< Management representations.
< Insurance cover details, including claims history.
< Significant ratios, trends and performance indicators over the last
(say) 10 years.

Solution 2 (continued)
< Rotational control schedule (e.g. location visits, inventory

observation, document examination, controls tested).
< Other documents of continuing importance:
= terms of engagement = mortgages and charges
= letters of authority (e.g. bank mandate) = title deeds and lease agreements
= minutes of important meetings = trade agreements and labour contracts
= key legal resolutions = profit share, bonus and share option
= annual filing returns agreements
= debenture deeds = royalty agreements
< Other professional advisers (bankers, lawyers, brokers).
< Past administration (e.g. budgets, costings).
Current Audit File

< Financial statements audited (evidenced as agreed to accounting
records, cross-referenced to supporting schedules with comparatives,
accounting policies, notes and disclosures all evidenced as audited).
< Completion checklists:
= Compliance with statutory and IFRS disclosure provisions.
= Partner sign off completion, including confirmation of audit report.
= Second partner review (as necessary).
= Audit completion checklists (partner, manager, senior).
< Closedown:
= Representation letter.
= Management letter (final and interim) plus response from client.
= Matters for attention of partner (final and interim).
= Minutes of meetings with directors, audit committee.
= Minutes of board meeting approving financial statements.
= Schedule of adjusted and unadjusted errors.
= Queries raised during the audit and subsequent clearance.
= Review notes (partner, manager, senior) and how cleared.
= Analytical review and performance indicators.
= Going concern and subsequent events.
= Ethical matters (e.g. proposed acceptance to continue as auditor).
= Confirmation of continued independence.
= Audit team assessments and reviews.
= Initial planning for next audit.
< Job administration:
= Engagement team and applicable experience.
= Budget and fee estimates.
= Actual time/cost summaries and variance analysis.
= Fee notes.
< Planning:
= Ethical matters (e.g. client acceptance, independence,
competence).
= Minutes of meetings with client, audit committee and audit team.
= Initial audit strategy, audit plan and tailored work programmes.
= Updated plans with explanations.
= Understanding of entity and its environment.
= Design of internal control and its implementation.
= Risk assessments, analytical review, materiality, sampling
approach.
= Direction, supervision and review of the audit team.

Solution 2 (continued)
< Audit sections:

= Final audit lead schedule showing makeup of key figures in the
financial statements (cross referenced to financial statements and
supporting schedules).
= Work programmes (interim and final).
= Supporting schedules detailing (for example) objective of test,
testing approach, sampling, work done, matters arising, action
taken and conclusion.
= Supporting work schedules detailing the actual work carried
out including balances, transactions and evaluation of control
effectiveness.
= Supporting internal and external documentation (e.g. bank letters,
receivable confirmations, expert valuations).
= Evidence of review, review notes and clearance of review point.

NOTES

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Session 6

B. Planning and Risk Assessment

(continued on next page)

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CONFIDENTIALITY, SAFE CUSTODY,

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The objective of the auditor is to produce working papers that

1.1 Objective, Definition and Scope

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2.1 Factors to Consider

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< Wherever standard documentation is used it is essential that

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2.3 Documentation Techniques

+/– +/– +/–

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3.1 Permanent v Current Audit Files

Example 2 Working Papers

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3.2 Audit Section Structure

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< An audit section (e.g. receivables, revenue, non-current

= A schedule showing the basis of accounting and accounting

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Illustration 3 Sample Working Paper

The following is a supporting schedule showing the work completed by the

Client: Hawk Co Prepared by: M.C Date: 17 Feb 2015

Less: Effect of 2014 Disposals

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3.3 Significant Matters

*The list of examples of significant matters is not an exhaustive

< Where the auditor is aware of information that contradicts

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3.4 Assembly of Working Papers File

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4 Confidentiality, Safe Custody, Retention

As part of the requirements on quality control, auditors should

4.1 Confidentiality and Safe Custody

Working papers should be retained for a period sufficient to meet

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4.2.2 ACCA Recommended Minimum Period

4.3.2 Determining Ownership

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Study Question Bank

Priority Estimated Time Completed

Q9 Working papers 40 minutes

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