ISA 230 Audit Documentation

ISA 230 is an International Standard on Auditing (ISA) issued by the International Auditing and Assurance Standards Board (IAASB). The ISAs are a set of globally recognized principles and guidelines for conducting an audit and are intended to enhance the quality and consistency of auditing practices across the world. ISA 230 specifically addresses the matter of  “audit documentation.”

ISA 230 applies to all audits, whether they are of financial statements or of other historical information. Non compliance to the standard can lead to severe consequences as evidenced by the decision of ICAEW’s Tribunal of the Disciplinary Committee in the case of Charles Prudence. The accused duplicated previous year’s working papers intentionally to hide the absence of performed audit work. The complaint was considered as extremely serious; the accountant was considered unfit to be registered with ICAEW. Additionally, a financial penalty of £7,215 was levied.

ISA 230 sets out the requirements for the content, form, and retention of audit documentation. It is designed to ensure that audit documentation is sufficient to enable another auditor to understand the nature, timing, and extent of the audit work performed and the conclusions reached. This is important for a number of reasons:

1. To provide a record of the audit work performed, the evidence obtained, and the conclusions reached by the auditor.
2. To serve as a means of communication between the auditor and the audit team, and between the auditor and the client.
3. To provide a basis for the auditor’s opinion on the financial statements.
4. To assist in the supervision and review of the audit work.
5. To provide evidence of compliance with laws and regulations, and professional standards.

ISA 230, requires auditors to prepare and retain written documentation that provides a sufficient appropriate record of the auditor’s basis for the auditor’s report. The standard requires that “the Auditor shall prepare audit documentation that is sufficient to enable an experienced auditor, having no previous connection with the audit, to understand:

1. The nature, timing and extent of the audit procedures performed to comply with the ISAs and applicable legal and regulatory requirements; (Ref: A6–A7)
2. The results of the audit procedures performed, and the audit evidence obtained; and
3. Significant matters arising during the audit, the conclusions reached thereon, and significant professional judgments made in reaching those (Ref: Para. A8–A11)

Objectives and  purpose of audit documentation

1. Support the audit report

This is an essential part of the basis for the auditor’s opinion on the financial statements. The documentation provides the auditor with a detailed understanding of the financial statements, which is necessary to form an opinion on the statements. The auditor should be able to demonstrate that the evidence obtained is sufficient and appropriate to support the auditor’s conclusions, and that the conclusions are reasonable and support the auditor’s opinion on the financial statement.

2. Evidence of work done

Documentation provides a clear and detailed understanding of the audit process and the auditor’s thought process, which is essential for both the auditor and the audit team. Additionally, it serves as a means of communication between the auditor and the audit team, and between the auditor and the client, which helps to ensure that all parties involved in the audit process are aware of and understand the nature, timing, and extent of the audit work performed, and the conclusions reached

3. Accountability Supervision and reviews

The documentation is used to evaluate the audit team’s performance and to identify any areas where improvements can be made. It also helps to ensure that the audit work is conducted in a consistent and reliable way, which is essential for maintaining the integrity of the audit process.

4. Inspections and investigations

To be compliant with statutes and professional standards, It is necessary to retain the documentation for a period as stipulated in law or as required by professional regulator standards. This ensures that the documentation is available for review by regulatory bodies or in settlement of legal disputes including defending the audit firms against claims of professional misconduct and incompetence.

5. The form, content and extent of audit documentation

The Auditor shall prepare sufficient and appropriate documentation on a timely basis to enhance quality and facilitate review. The type of documents to be retained and the scale of such documentation depends on:

1. Size and complexity of the entity
2. Nature of the audit procedures to be completed
3. Identified risks of material nature
4. Significance of audit evidence
5. Nature and extent of exceptions
6. Need to document a conclusion or the basis for a conclusion not readily determinable from the documentation of the work performed or audit evidence
7. The audit methodology and tools

Where the engagement partner performs all the audit work, the documentation will not include matters that might have to be documented solely to inform or instruct members of an engagement team

Examples of Audit Documentation

Audit documentation can be digital files or paper based. Some examples of audit documentation that are commonly used in the audit process are:

1. Audit work programmes

This is a set of procedures and instructions used in conducting audits. The work programme outlines the specific steps that the auditor will take to gather and analyze information in order to assess the accuracy and reliability of financial statements and other information.

2. Data Analysis.

Analytical procedures applied for review of financial data and for identification of any unusual or unexpected patterns or trends. E.g comparing financial data from different periods, performing ratio analysis and identifying unusual transactions.

3. Audit findings memoranda.

This is a document that is used during an audit to document and communicate any issues or concerns that arise during the course of the audit. The two most commonly used logs are matters for partner attention and management letter issues.

4. Letters of confirmation and representation.

This is a document usually shared by the auditor to a third party such as a customer, supplier, or bank requesting for an independent confirmation on a specific matter for example bank balances, loans outstanding or trading account balances outstanding.

5. Checklists

A checklist contains a list of items or procedures that the auditor needs to review or perform during the course of the audit. Checklists are used as a tool to help ensure that the auditor has performed all of the necessary procedures and considered all of the relevant information.

Final Audit File and Documents Retention

The Auditor shall assemble audit documentation and complete the administrative process of assembling the final  audited financials in a timely basis after the date of the auditor’s report. The auditor shall not delete or discard     these documents before the end of the stipulated retention period.

Conclusion

ISA 230 prescribes the diligence that auditors should exercise when gathering audit documentation and additional requirements on records retention. Using an audit software such as auditproo, auditors can be able to meet the stringent requirements set by the standard. If you would like to have a free demo of the software, please do not hesitate to contact us.