Part Five

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• Part Five
• Auditing Standards, Audit Evidence
• Audit documentation

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Structure of Seminar

• 1. Auditing Standards
• 2. Audit evidence
• 3. Audit Procedures
• 4. Audit documentation

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1. Auditing Standards

• From 2004, Auditing Assurance Standards Board
  (AUASB) constituted under the governments
  Financial Reporting Council (FRC) issues
  Australian Auditing Standards (ASAs)
• From 1 July 2006, Australia fully adopted
  international auditing standards (ISAs)
• Standards a minimum level of care

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2. Audit evidence

• Audit evidence is used to verify managements F/S
  assertions
• Evidence is gathered and evaluated to meet
  specific audit objectives
• Evidence consists of
• -Underlying accounting data of entity
• -All corroborating information
• Underlying accounting data
• Books of original entry
• General subsidiary ledgers

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Audit evidence

• Related accounting manuals
• Memoranda informal records
• Corroborating information
• Documents (cheques, invoices, receipts, etc)
• Confirmations other written representations
• Information from inquiry, observations,
  inspection physical examination
• All other information acquired by auditor

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Audit evidence

• ASA 200 Audit Evidence
• the auditor should obtain sufficient,
  appropriate audit evidence to be able to draw
  reasonable conclusions on which to base the audit
  opinion
• Sufficiency of audit evidence
• Materiality and audit risk
• Economic factors
• -Cost-benefit
• Population size and characteristics
• -sampling

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Audit evidence

• Appropriateness of audit evidence
• Relevance
• Reliability
• Source nature of information
• Timeliness
• Objectivity
• Reasonable basis for forming opinion evidence
  is persuasive not conclusive

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Reliability of documentary evidence
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Types of Evidence
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3. Audit Procedures

• Methods techniques used by auditor to gather
  evidence
• Analytical procedures
• Inspecting
• Tracing
• Vouching
• Confirming
• Enquiring
• Counting

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Audit Procedures

• Observing
• Re-performing
• Many of these procedures can be performed with
  audit software

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Vouching vs Tracing
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Audit Procedures

• Classification of auditing procedures
• 1)Procedures to obtain an understanding of
  the internal control structure
• 2)Tests of controls
• Substantive procedures
• Tests of details of transactions
• Tests of details of balances
• Analytical procedures

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Evaluation of Evidence Obtained
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4. Audit documentation

• It is important to document audit work performed
  in working papers to
• Enable reporting partner to ensure all
  planned work has been completed adequately
• Provide details of work done for
  future reference
• Assist in planning and control of
  future audits
• Encourage a methodical approach

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Audit documentation

• 1) The objective of audit documentation
• Audit documentation is the record
  of audit procedures performed, relevant audit
  evidence obtained and conclusions reached. The
  term 'working papers' or 'work papers' are also
  sometimes used.
• Audit documentation is necessary for the
  following reasons
• It provides evidence of the auditors
  basis for a conclusion about the achievement of
  the overall objective.

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Audit documentation

• It provides evidence that the audit was
  planned and performed in accordance with ISAs and
  other legal and regulatory requirements.
• It assists the engagement team to plan and
  perform the audit.
• It assists team members responsible for
  supervision to direct, supervise and review audit
  work.
• It enables the team to be accountable for
  its work.
• It allows a record of matters of continuing
  significance to be retained.

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Audit documentation

• It enables the conduct of quality control
  reviews and inspections (both internal and
  external).
• 2) Form and content of working papers
• The ISA requires working papers to be
  sufficiently complete and detailed to provide an
  overall understanding of the audit. Auditors
  cannot record everything they consider.
• The form and content of working papers are
  affected by matters such as
• The size and complexity of the entity

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Audit documentation

• The nature of the audit procedures to be
  performed
• The identified risks of material
  misstatement
• The significance of the audit evidence
  obtained
• The nature and extent of exceptions
  identified
• The need to document a conclusion or the
  basis for a conclusion not readily determinable
  from the
• documentation of the work performed or audit
  evidence obtained
• The audit methodology and tools used

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Audit documentation

• (1) Permanent audit files
• These contain
• Engagement letters
• ?? New client questionnaire
• ?? The memorandum and articles
• ?? Other legal documents such as
  prospectuses, leases, sales agreement
• Details of the history of the
  clients business
• ?? Board minutes of continuing relevance

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Audit documentation

• ?? Previous years signed accounts,
  analytical review and management letters
• ?? Accounting systems notes, previous years
  control questionnaires
• (2) Current audit files
• These should be compiled on a timely basis
  after the completion of the audit and should
  contain
• Financial statements
• ?? Accounts checklists

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Audit documentation

• Management accounts details
• ?? Reconciliations of management and financial
  accounts
• ?? A summary of unadjusted errors
• ?? Report to partner including details of
  significant events and errors
• Review notes
• ?? Audit planning memorandum
• ?? Time budgets and summaries
• ??

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Audit documentation

• Representation letter
• ?? Management letter
• ?? Notes of board minutes
• ?? Communications with third parties such as
  experts or other auditors
• 3) Safe custody and retention of working papers
• Working papers are the property of the auditors.
  They are not a substitute for, nor part of, the
  entitys accounting records.