Audit Documentation

Audit documentation is the documentation of the procedures carried out by auditors, the evidence they collect, and the conclusions they draw based on their work. It proves the reliability of an auditor's opinion in an audit report as it consists of all the essential aspects of the audit.

ISA, or International Standards on Auditing, guides the auditors on the documentation of the auditing process. Usually, auditors maintain the documentation in physical form. Nevertheless, various auditors have switched to a digital process to reduce paperwork and make the documentation less time-consuming. An example of such documentation is the internal control documents prepared by auditors in MS Excel.

• Audit documentation meaning refers to the records auditors maintain for individual audit assignments. They may store the records in written or electronic form.
• There are different objectives of audit documentation. For example, the records serve as a base for future audits and make all the engagement team members accountable for their actions.
• Audit working papers include the procedures performed by an auditor, the auditor's name, the evidence gathered during the process, etc.
• A key benefit of audit documentation is that it can help resolve disputes if the auditor is accused of being negligent when performing the audit procedures.

Audit documentation meaning refers to the records auditors maintain for a particular audit assignment. Such records include every procedure they perform and the evidence they acquire. Moreover, it includes their conclusions based on the evidence gathered. The records prove that the auditors performed all procedures according to the ISA guidelines and other regulatory or legal requirements. Moreover, the documentation proves the reliability of the auditor's opinion.

One must note that the ISA does not have strict rules regarding the records that auditors must maintain. Instead, the auditing standards offer guidance regarding the qualities audit documentation should fulfill.

Per the ISA's requirement, auditors must fulfill two criteria. They are as follows:

• First, the audit documentation or working paper must provide a basis for the auditors' overall conclusion regarding the objective.
• Secondly, the records maintained by auditors must show that the audit procedures were performed according to the guidelines provided by ISA.

Besides these, if other regulatory or legal standards apply, auditors must adhere to them.

Let us look at the objectives of audit documentation.

• The records provide a basis for the auditors' conclusion about fulfilling the overall objective.
• The records offer a base for audits carried out in the future.
• It makes the members of an audit team accountable for the procedures carried out during an audit assignment.
• The maintenance of all records is a part of the quality control process for an audit assignment.

Audit documentation must have the following key details:

• The nature of data or information being prepared.
• Name of the auditor preparing the audit working paper.
• The audit procedures were performed per ISA guidelines and other legal and regulatory requirements.
• Any significant information regarding the company's ethics, financial statements, and processes.
• The auditor's judgments regarding some sampling or testing.
• Audit duration.
• The evidence obtained by the auditor, the procedures used by them for testing, and their results.

Including the above information helps the senior auditor, who was not a part of the engagement team, to comprehend the work performed when reviewing the records.

Let us look at a few audit documentation examples to understand the concept better.

Example #1

In December 2022, the PCAOB or Public Company Accounting Oversight Board announced that KPMG Colombia, KPMG UK, KPMG India, and four individuals linked with KPMG International Limited infringed its quality control standards concerning internal training programs and audit documentation.

The board found that KPMG Colombia improperly modified the audit documentation for a couple of audits in 2016 before a PCAOB inspection. According to the board, the violations resulted from deficiencies in the organization's quality control system, as it could not provide rational assurance that the records were safeguarded against improper alterations.

As a result, the board fined KPMG Colombia $4 million for violating its quality control standards. In addition, it fined KPMG India and KPMG UK $1 million and 2.6 million, respectively.

Example #2

In December 2022, for the first time, the Public Company Accounting Oversight Board gained unrestrained access to audit working papers of public accounting organizations with headquarters in Hong Kong and China. This marked the first significant measure to solving a long-term deadlock on auditing Chinese companies listed on stock exchanges in the US. The announcement from the US regulatory body represents a significant development in the audit and oversight understanding between the two countries.

The following are the benefits of audit documentation:

• A few years later, the records show auditors how the auditor conducted the audit.
• Documenting the audit procedures, evidence, and conclusions can help train junior auditors.
• It facilitates the engagement's performance, planning, supervision, and performance, demonstrating better quality control over an audit assignment.
• If anyone accuses the auditor of negligence, the records can help settle disputes.
• It defines the roles and responsibilities of all individuals involved in an audit assignment.

This article has been a guide to what is Audit Documentation. Here, we explain the concept with its examples, checklist, purpose, and benefits. You may also find some useful articles here -

• Compliance Audit
• Auditor Independence
• Auditor’s Opinion