ISA 230 AUDIT DOCUMENTATION

Proposed redrafted International Standard on Auditing issued for comment by

the International Auditing and Assurance Standards Board of the International
Federation of Accountants

Comments from ACCA

April 2007
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ACCA (the Association of Chartered Certified Accountants) is the largest and

fastest-growing global professional accountancy body with 296,000 students
and 115,000 members in 170 countries.

We aim to offer the first choice qualifications to people of application, ability

and ambition around the world who seek a rewarding career in accountancy,
finance and management. ACCA works to achieve and promote the highest
professional, ethical and governance standards and advance the public interest.

www.accaglobal.com
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Executive Summary
ACCA welcomes the opportunity to comment on the proposed International
Standard on Auditing ISA 230 (Redrafted) Audit Documentation (proposed
ISA 230), issued for comment by the International Auditing and Assurance
Standards Board (IAASB) of the International Federation of Accountants.

Our comments are restricted to the changes proposed as a result of amending

the Preface1 and in applying the Clarity project drafting conventions to extant
ISA 230.

We agree with the objective of proposed ISA 230 and the emphasis placed on
documenting only significant professional judgements. We welcome the
additional clarification of the approach to documentation of departures from
requirements and the interaction with other ISAs that contain documentation
requirements.

We welcome guidance introduced to clarify that audit documentation for the

audit of a smaller entity will generally be less extensive than that for the audit of
a larger entity. We suggest, however, that more could be done in proposed
ISA 230 and other ISAs to address the problem that ISAs give rise to
proportionately greater costs in preparing smaller entity audit documentation.

We point out two significant examples of a general problem we highlighted in

an earlier response to exposure drafts in the Clarity project, whereby explanatory
material could be mistaken, in these cases, for a limitation on a requirement.
We continue to recommend that the Requirements section contains nothing but
requirements.

1
The Preface to the International Standards on Quality Control, Auditing,
Review, Other Assurance and Related Services (approved December 2006).
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Objective
We consider that the objective is appropriate.
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Changes Required as a Result of

Amending the Preface
DOCUMENTATION RELATING TO SIGNIFICANT PROFESSIONAL
JUDGMENTS MADE

We agree with the amendments to extant ISA 230 to give effect to the changes
set out in the Explanatory Memorandum for documentation relating to
significant professional judgments. The focus of proposed ISA 230, on
significant professional judgements made in relation to significant matters,
should deter auditors from documenting unimportant judgements; a practice
that would otherwise impair auditor efficiency and reviewer effectiveness.

DOCUMENTATION OF DEPARTURE FROM A REQUIREMENT

In general, we agree with the requirement set out in paragraph 10, as it is

important to document how the auditor achieves the aim of a relevant
requirement when it is departed from. As ISAs do not specify the aim of a
requirement, it is necessary for the auditor to apply professional judgement in
the circumstances, making use of the relevant objective.

We do not agree, however, with the inclusion of the words, ‘in exceptional
circumstances’. The nuance of their meaning, which appears clear to the drafter
may be other than clear to the user, especially in translation. This is
presumably explanatory material, intended as commentary on the anticipated
frequency with which such circumstances might occur. As such, it should
properly be in the section for Application and Other Explanatory Material
(A&OEM). It could also be read as a condition of the requirement, limiting its
scope. Under such a limited requirement, auditor judgement that it is necessary
to depart from a relevant requirement will only be required to be documented
when the circumstances are exceptional. This cannot be what is intended.
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ACCA has previously argued at length2 that explanatory material should be

excluded from the Requirements section because it could be mistaken for a
requirement or cause users to mistake a requirement for mere explanation. The
lengthening of the requirements section and the exclusion of explanatory
material from the A&OEM section also detract from overall clarity.

As set out in the Explanatory Memorandum, the related material in paragraphs

A16 and A17 must agree to ISA 200 (Revised) Overall Objective of the
Independent Auditor, and Fundamental Concepts Relevant to an Audit of
Financial Statements when that is finalised. Accordingly, we offer no further
comment on those paragraphs at this time.

2
Improving the Clarity of IAASB Standards - Redrafting proposals including four ISA Exposure
Drafts, Comments from ACCA, February 2006.
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Changes Made to Enhance the Clarity

of Proposed ISA 230
SPECIFIC DOCUMENTATION REQUIREMENTS IN OTHER ISAS

We agree with the guidance in paragraph A6 clarifying the interaction of

proposed ISA 230 with other ISAs that contain documentation requirements.

The Introduction to proposed ISA 230 states that, ‘The specific documentation
requirements of other ISAs do not limit the application of this ISA.’ We
recommend conforming this to the guidance in paragraph A6 to make it clear
that neither do the specific documentation requirements extend the application
of proposed ISA 230.

We consider that the interaction between documentation requirements in

ISA 230 and other ISAs is of sufficient importance that the IAASB needs to
ensure that:

• A consistent approach is taken as to whether, and for what reasons, specific

documentation requirements are included in each ISA.

• Guidance on the form and extent of audit documentation (such as that in

paragraph A59 of ISA 330 The Auditor’s Procedures in Response to
Assessed Risks (Redrafted)) does not contradict that in proposed ISA 230.

• Audit documentation considerations specific to smaller entities are included

in guidance in each ISA (even where that ISA contains no specific
documentation requirements) where necessary to emphasise the ways in
which such documentation may be less extensive.
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In relation to this last bullet point, we draw attention to the recent issue by the
UK Auditing Practices Board of Consultation Papers including draft guidance on
smaller entity audit documentation. The guidance seeks to respond to
indications that the implementation of UK and Ireland versions of ISAs gave rise
to greater costs in preparing smaller entity audit documentation, in particular in
relation to ISA (UK and Ireland) 315 Understanding the Entity and Its
Environment and Assessing the Risks of Material Misstatement.

DOCUMENTATION OF COMPLIANCE WITH ISAS

We agree with the inclusion of clarification that it is unnecessary for the auditor
to document separately compliance with matters for which compliance is self-
evident.

We are concerned, however, that the brevity of the list of examples in

paragraph A7, taken together with the use of the words ’within the audit file’
could lead auditors to undertake more documentation to make matters visibly
‘self-evidently compliant’.

We suggest extending the list of examples in paragraph A7 or introducing

guidance in other ISAs where requirements occur for which compliance is often
self-evident. We also suggest that firms should be able to demonstrate self-
evident compliance centrally, as explained further below.

In proposed ISA 230, the words ‘audit file’ denote an assembly of audit
documentation for a specific audit engagement. The methodology and processes
adopted by a firm to ensure compliance with ISAs are often documented on an
overall basis in an ‘audit manual’. It should be acceptable for that document to
explain those instances where compliance is self-evident.

The bold type in extant ISAs identifies basic principles and essential procedures.
These are substantially different in nature, but the Clarity project has combined
the two as ‘requirements’. We do not agree with this approach, which leads to
confusion, as auditors may attempt to treat a principle as an action, or vice
versa.
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Compliance with requirements that are principles is often ‘self-evident’ only

after consideration of matters that will be part of an audit manual. For example,
paragraph 22 of ISA 330 The Auditor’s Responses to Assessed Risks
(Redrafted) contains a requirement that: ‘When the auditor has determined
that an assessed risk of material misstatement at the assertion level is a
significant risk, the auditor shall perform substantive procedures that are
specifically responsive to that risk.’ Although the audit file will record the
procedures performed, compliance with the requirement that the substantive
procedures are ‘specifically responsive’ may be demonstrated in an audit
manual by tabulation of risks of material misstatement at the assertion level
against a list of procedures. The selection of a procedures may be constrained
by audit software such that only procedures that are specifically responsive to a
risk are capable of selection.

SPECIAL CONSIDERATIONS IN THE AUDIT OF SMALL ENTITIES

We welcome the inclusion of guidance to clarify that the documentation for the
audit of a smaller entity will generally be less extensive than that for the audit of
a larger entity and that, in appropriate circumstances, it is efficient to record
various aspects of the audit together on a single working paper.

In relation to specific documentation requirements in other ISAs, we

commented earlier in this response on the fact that ISAs give rise to greater
costs in preparing smaller entity audit documentation. Accordingly, we
recommended that audit documentation considerations specific to smaller
entities are included in guidance in each ISA (even where that ISA contains no
specific documentation requirements) where necessary to emphasise the ways
in which such documentation may be less extensive.
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Translations
Earlier in this response, in relation to documentation of departure from a
requirement, we drew attention to the difficulty of using, in paragraph 10, the
words, ‘in exceptional circumstances’. The nuance of their meaning, which
appears clear to the drafter may be other than clear to the user, especially in
translation. This is presumably explanatory material, intended as commentary
on the anticipated frequency with which the related circumstances might occur.
As such, it should properly be in the section for A&OEM. It could also be read
as a condition of the requirement limiting its scope so that it only applies when
circumstances are exceptional. This cannot be what is intended.

Paragraph 15 contains a similar construction and we recommend addressing

this, and other paragraphs in the Clarified ISAs with this defect, to improve the
clarity of language for translation. ACCA has previously argued at length3 that
explanatory material should be excluded from the Requirements section
because it could be mistaken for a requirement or cause users to mistake a
requirement for mere explanation. The form of words in paragraphs 10 and 15
provide an illustration of this general problem.

3
Improving the Clarity of IAASB Standards - Redrafting proposals including four ISA Exposure
Drafts, Comments from ACCA, February 2006.
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The Association of Chartered Certified Accountants

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