Basic understanding of audit report,

working papers and files.

Presented by Anwar Hossain ACA

What we are going to talk about?
1. Overview of audit report and different types of audit opinion;
2. Audit documentation
❖ What is audit working paper?
❖ Why and how it is to be prepared?
❖ Retention of working papers;
3. Types and contents of audit files;
4. How documents are kept in the files;
5. Confidentiality.
Overview of audit report and different types of audit opinion
Objectives of an audit of financial statements [Para 6, ISA 700 (Revised)]:
a) To form an opinion on the financial statements based on an evaluation of the conclusions drawn from the audit evidence
obtained; and
b) To express clearly that opinion through a written report.

The auditor shall form an opinion on whether the financial statements are prepared, in all material respects, in accordance with the
applicable financial reporting framework. [Para 10, ISA 700 (Revised)]

In particular, the auditor shall evaluate whether, in view of the requirements of the applicable financial reporting framework [Para 13,
ISA 700 (Revised)]:
❖ The financial statements appropriately disclose the significant accounting policies selected and applied consistently.
❖ The accounting estimates made by management are reasonable;
❖ The information presented in the financial statements is relevant, reliable, comparable, and understandable.
❖ The financial statements provide adequate disclosures to enable the intended users to understand the effect of material
transactions and events on the information.
Overview of audit report and different types of audit opinion
(cont’d)
Form of opinion:
Unmodified opinion: The auditor shall express an unmodified opinion when the auditor concludes that the financial statements are
prepared, in all material respects, in accordance with the applicable financial reporting framework. [Para 16, ISA 700 (Revised)]
The auditor use one of the following phrases for expressing an unmodified opinion;
❖ In our opinion, the accompanying financial statements present fairly, in all material respects, […] in accordance with the
applicable financial reporting framework; or
❖ In our opinion, the accompanying financial statements give a true* and fair* view of […] in accordance with the applicable
financial reporting framework.

True: Information is factual and conforms with reality, not false. In addition the information conforms with required standards and
law. The accounts have been correctly extracted from the books and records.

Fair: Information is free from discrimination and bias in compliance with expected standards and rules. The accounts should reflect
the commercial substance of the company’s underlying transactions.
Overview of audit report and different types of audit opinion
(cont’d)
Modified opinion: The auditor shall modify the opinion in the auditor’s report in accordance with ISA 705 (Revised) if ,
❖ the financial statements as a whole are not free from material misstatement;
❖ Is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from
material misstatement,

Types of modified opinion:

❖ Qualified Opinion: misstatements, individually or in the aggregate, are material, but not pervasive, to the financial
statements; or The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, could be
material but not pervasive.
❖ Adverse Opinion: When the auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements,
individually or in the aggregate, are both material and pervasive to the financial statements.
❖ Disclaimer of Opinion: The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion,
and the auditor concludes that the possible effects on the financial statements of undetected misstatements, if any, could be
both material and pervasive.

Summary:
Nature of matter Material but not pervasive Material and pervasive
Financial statements are materially misstated Qualified opinion Adverse opinion
Inability to obtain sufficient appropriate evidence Qualified opinion Disclaimer of opinion
Overview of audit report and different types of audit opinion
(cont’d)
According to ISA 700 (Revised), the audit report should include the following basic elements,
❖ Title: The auditor’s report shall have a title that clearly indicates that it is the report of an independent auditor.
❖ Addressee: The auditor’s report shall be addressed, as appropriate, based on the circumstances of the engagement.
❖ Auditor’s Opinion: The first section of the auditor’s report shall include the auditor’s opinion, and shall have the heading
“Opinion.”
❖ Basis for Opinion: States whether the auditor believes that the audit evidence the auditor has obtained is sufficient and
appropriate to provide a basis for the auditor’s opinion.
❖ Going Concern: Where applicable, the auditor shall report in accordance with ISA 570 (Revised).
❖ Key Audit Matters: Those matters that, in the auditor’s professional judgment, were of most significance in the audit of the
financial statements of the current period.
For audits of complete sets of general purpose financial statements of listed entities or otherwise required by law or regulation or
decides to communicate key audit matters in the auditor’s report, the auditor shall communicate key audit matters in the
auditor’s report in accordance with ISA 701.
❖ Other Information: Where applicable, the auditor shall report in accordance with ISA 720 (Revised).
❖ Responsibilities of Management for the Financial Statements
❖ Auditor’s Responsibilities for the Audit of the Financial Statements
❖ Report on Other Legal and Regulatory Requirements
❖ Name of the Engagement Partner
❖ Signature of the Auditor
❖ Auditor’s Address
❖ Date of the Auditor’s Report
Please refer to a sample Audit report for listed client.
Audit documentation
What is audit working paper?

Audit documentation— The record of audit procedures performed, relevant audit evidence obtained, and conclusions the auditor
reached (terms such as “working papers” or “workpapers” are also sometimes used). [Para 6, ISA 230 ]

Nature and Purposes of Audit Documentation: Audit documentation that meets the requirements ISAs: [Para 2, ISA 230]
a) Evidence of the auditor’s basis for a conclusion about the achievement of the overall objectives of the auditor; and
b) Evidence that the audit was planned and performed in accordance with ISAs and applicable legal and regulatory
requirements.

Audit documentation serves a number of additional purposes, particularly in relation to assurance providers record their work to:
[Para 3, ISA 230]
❖ Assist the audit team to plan and perform the audit
❖ Assist relevant members of the team to direct and supervise work
❖ Enable the audit team to be accountable for its work (and to prove adherence to ISAs in a litigious situation)
❖ Retain a record of matters of continuing significance to future audits
❖ Enable an experienced auditor to carry out quality control reviews
❖ Enable an experienced auditor to conduct external inspections in accordance with applicable legal, regulatory or other
requirements.

All assurance work must be documented: the working papers are the tangible evidence of the work done in support of the conclusion.
Audit documentation (Cont’d)
Form, Content and Extent of Audit Documentation:

The auditor shall prepare audit documentation that is sufficient to enable an experienced auditor to understand: [Para 8, ISA 230]
(a) The nature, timing and extent of the audit procedures performed to comply with the ISAs and applicable legal and
regulatory requirements;
(b) The results of the audit procedures performed, and the audit evidence obtained; and
(c) Significant matters arising during the audit, the conclusions reached thereon, and significant professional judgments made
in reaching those conclusions.
The auditor shall document discussions of significant matters with management, those charged with governance, and others,
including the nature of the significant matters discussed and when and with whom the discussions took place. [Para 10, ISA 230]

Audit documentation may be recorded on paper or on electronic or other media. Examples of audit documentation include: [Para A3,
ISA 230]
❖ Audit programs.
❖ Analyses.
❖ Issues memoranda.
❖ Summaries of significant matters.
❖ Letters of confirmation and representation.
❖ Checklists.
❖ Correspondence (including e-mail) concerning significant matters.
❖ Abstracts or copies of the entity’s records (for example, significant and specific contracts and agreements) etc.
Audit documentation (Cont’d)
Oral explanations by the auditor, on their own, do not represent adequate support for the work the auditor performed or conclusions
the auditor reached, but may be used to explain or clarify information contained in the audit documentation. [Para A5, ISA 230]

The auditor shall assemble the audit documentation in an audit file and complete the administrative process of assembling the final
audit file on a timely basis after the date of the auditor’s report. [Para 14, ISA 230]

How it is to be prepared?
Working papers should be headed in a certain way and contain certain information.

Working papers should show:

❖ How any sample was selected
❖ The name of the client
❖ The sample size determined
❖ The balance sheet date
❖ The work done
❖ The file reference of the working paper
❖ A key to any audit ticks or symbols
❖ The name of the preparer
❖ Appropriate cross-referencing
❖ The date of preparation
❖ The results obtained
❖ The subject of the working paper
❖ Analysis of errors
❖ The name of the reviewer
❖ Other significant observations
❖ The date of the review
❖ The conclusions drawn
❖ The objective of the work done
❖ The key points highlighted etc.
❖ The source of information
Please refer to a sample working paper.
Audit documentation (Cont’d)
Safe custody and retention of documentation:

The firm shall establish a period of time for the retention of documentation for the system of quality management that is sufficient to
enable the firm to monitor the design, implementation and operation of the firm’s system of quality management, or for a longer
period if required by law or regulation. [Para 60, ISQM 1]

According to the Companies Act 1994, section 181(5), “The books of accounts of every company relating to a period of not less than
twelve years immediately preceding the current year together with vouchers relevant to any entry in such books of account shall be
preserved in good order”.

Firms should have good security procedures over their retained working papers. Paper documents must be kept securely, in locked
premises. Electronic documents should be protected by electronic controls.
Types and contents of audit files
Audit file – One or more folders or other storage media, in physical or electronic form, containing the records that comprise the audit
documentation for a specific engagement.

Permanent audit files (contain any information of continuing importance to the audit). These may contain:
❖ Engagement letters
❖ New client questionnaire
❖ The memorandum and articles of association
❖ Other legal documents such as prospectuses, leases, sales agreements
❖ Details of the history of the client's business
❖ Board minutes of continuing relevance
❖ Previous years' signed accounts, analytical procedures and management letters
❖ Accounting systems notes, previous years' control questionnaires etc.

Current audit files (contain any information of relevance to the current year's audit). These should be compiled on a timely basis
after the completion of the audit and should contain (amongst other things):
❖ Financial statements
❖ Accounts checklists
❖ Management accounts details
❖ Reconciliations of management accounts and financial statements
❖ A summary of unadjusted errors
❖ Report to partner including details of significant events and errors
❖ Review notes
Types and contents of audit files (cont’d)
Current audit files (cont’d)
❖ Audit planning memorandum
❖ Time budgets and summaries
❖ Letter of representation
❖ Management letter
❖ Notes of board minutes
❖ Communications with third parties such as experts or other auditors

They also contain working papers covering each audit area.

❖ A lead schedule including details of the figures to be included in the accounts
❖ Problems encountered and conclusions drawn
❖ Audit plans
❖ Risk assessments
❖ Sampling plans
❖ Analytical procedures
❖ Details of tests of detail and tests of control

Correspondence file refers to all documents evidencing communication (written or electronic) between the company and financial
auditors. It includes any means of communication via letters, notices, reports and filings, related to the assessment of the company's
financial statements.
How documents are kept in the files
Firms should have standard referencing and filing procedures for working papers, to facilitate their review. A nondigital or paper
document can be physically stored in a file cabinet, whereas an electronic or digital document is stored in a computer or database.

Please refer to a sample Current Audit File Index

Please refer to a sample permanent audit file index

Confidentiality
International Ethics Standards Board for Accountants (IESBA) Code of Ethics was published by the International Federation of
Accountants (IFAC) for professional accountants. The Institute of Chartered Accountants of Bangladesh (ICAB) is one of the founding
members of IFAC therefore the members (and trainees) and employees of member firms are subject to follow the Code of Ethics
issued by IFAC. Financial Reporting Council, Bangladesh also adopted the IFAC code of ethics.

The IFAC Code contains a number of fundamental principles:

❖ Integrity
❖ Objectivity
❖ Professional competence and due care
❖ Confidentiality
❖ Professional behaviour

Confidentiality: A professional accountant should respect the confidentiality of information acquired as a result of professional and
business relationships and should not disclose any such information to third parties without proper and specific authority unless
there is a legal or professional right or duty to disclose. Confidential information acquired as a result of professional and business
relationships should not be used for the personal advantage of the professional accountant or third parties.

Example: Mr. A arrives at XYZ Limited and begins work on a different part of the audit file. He leaves the office unattended and
unlocked and goes to the toilet. During that time, the purchase ledger clerk goes into the audit office and reviews the payroll. He later
raises a complaint with the pay department that the sales ledger clerk earns more than he does.

Mr. A has breached simple security measures in this scenario, which has resulted in confidentiality being breached.
Confidentiality (cont’d)
The following security procedures are probably wise to prevent accidental disclosure of information:
❖ Do not discuss client matters with any party outside of the accountancy firm
❖ Do not discuss client matters with colleagues in a public place
❖ Do not leave audit files unattended (at a client's premises or anywhere)
❖ Do not leave audit files in cars or in unsecured private residences
❖ Do not remove working papers from the office unless strictly necessary
❖ Do not work on electronic working papers on systems that do not have the requisite protection
In addition, to prevent unauthorised deliberate disclosures of information:
❖ Raise concerns with more senior staff in the firm
❖ Seek legal advice before making any disclosures of potentially confidential information
Information acquired in the course of professional work should only be disclosed where
❖ Consent has been obtained from the client, employer or other proper source, or
❖ There is a public duty to disclose, or
❖ There is a legal or professional right or duty to disclose.
Confidentiality (cont’d)
The Code of Ethics identifies three circumstances where the professional accountant is or may be required to disclose confidential
information:
❖ Where disclosure is permitted by law and is authorised by the client or the employer, for example where the auditor has
uncovered a fraud and the client is in agreement that the matter should be referred to the police.
❖ Where disclosure is required by the law, for example Reporting clients involved in terrorist activities, Suspected money
laundering etc.
❖ Where there is a professional duty or right to disclose, when not prohibited by law. An accountant may defend himself in a
negligence claim, for example The Code of Ethics states that a professional accountant may disclose confidential information
to third parties if the disclosure can be justified in 'the public interest' and is not contrary to laws and regulations.
Q&A
Presenter’s contact details
Anwar Hossain ACA
Manager- Assurance
A. Qasem & Co.
Chartered Accountants
Cell: +880 1918 275958
Email: aanwar.aqcbd@gmail.com
***The End***
Thank you