Auditing Theory
Audit Documentation
PSA 230 – “Audit Documentation”
- Auditor should prepare audit documentation
that provides:
(1) Sufficient appropriate record of basis for
opinion
(2) Evidence that the audit was performed in
accordance with the PSAs
Audit documentation (working papers, work papers)
- Record of:
 Audit procedures performed
 Evidence obtained
 Conclusions reached
- Objective:
(1) Enhance quality of the audit
(2) Facilitate effective review and evaluation of
audit evidence obtained and conclusions
reached before the auditor’s report is
finalized
Other objectives
- Assists in planning and performing the audit
- Assists those responsible for supervision and
review as per PSA 220
- Accountability of engagement team
- Retention of matters of continuing significance
- Enabling conduct of quality control in
accordance with PSQC 1
- Enabling conduct of external inspection in
accordance with legal, regulatory, other
requirements
Audit file
- On or more folders or other storage media
containing records that comprise the audit
documentation for an engagement
Experienced auditor
- Individual (external/internal) with practical
audit experience and reasonable understanding
of:
a. Audit processes
b. PSAs and other legal and regulatory
requirements
c. Business environment of the entity
d. Auditing and financial reporting issues
relevant to the entity’s industry
Auditor shall prepare AD, having no previous connection
with the audit, to understand:
 NTE of audit procedures
 Results of procedures and evidence
obtained
 Significant matters, conclusions reached,
significant professional judgments made
It is neither necessary nor practicable to document
everything
Oral explanations by the auditor, alone, do not
represent adequate support for the work and
conclusions, but may be used to clarify content of AD.
Documentation of NTE of audit procedures:
1. Identifying characteristics of specific items or
matters tested
2. Who performed and completion date
3. Who reviewed & completion date and extent of
review
Auditor assembles the audit file after the date of the
auditor’s report; auditor shall NOT delete AD of any
nature before the end of its retention period.
Documentation required when the auditor finds it
necessary to modify existing AD or add new AD after
assembly of final audit file
1. Specific reasons for making them
2. When and by whom they were made and
reviewed
Types of working papers
1. Audit Administrative Working Papers
 Aids in planning and administration of
engagements
 E.g. audit plans, audit programs, IC
questionnaires & flowcharts,
engagement letters, time budget
Audit program - detailed list of procedures to be
performed in an engagement; purposes:
- Procedural guide
- Basis of delegation of work
- Basis of reviewing progress
- Enables auditor to ensure that the program
designed to substantiate amounts appearing in
the accounts and related notes have covered all
material aspects thereof
Well-designed audit program provides evidence of:
- Proper planning (important steps were not
overlooked)
- Coordination and monitoring
- Supervision and review
- Completion of all steps
- Compliance with standards
Types of audit programs:
1. Standard all-purpose audit program – lists
standard practices to almost all engagements
2. Tailor-made audit program – procedures to be
followed for a specific audit engagements;
indicates departures from normal practices
3. Modified standard form audit program –
preprinted; outlines usual audit procedures, but
provides a space for other specific procedures
2. Working Trial balance and Lead Schedules
Working trial balance
- list of all accounts in GL
- Minimum requirement for columns: unadjusted
amounts, proposed AJE, adjusted amounts
- Backbone of working papers
 Overall index
 Aids in control and review
 Basis for accumulation and
arrangement of account balances for FS
presentation
Lead/Top Schedule
- Shows grouping of related account balances
- Each line item in TB has a corresponding lead
schedule containing detailed accounts from GL
3. Supporting Schedules and Analyses
Supporting schedules - schedules that support specific
amounts on the FS
Account analysis - shows activity in a particular
accounts, from beginning balance, transactions, to the
ending balance
4. Summary of Adjusting and Reclassifying Entries
Adjusting entries – corrections of material errors; must
be approved by the client because management is
primarily responsible for fair presentation of FS
Reclassifying entries – made to present info properly,
even when GL balances are correct
5. Audit Notes/ Memoranda and Documentation
of Corroborating Information
Audit notes – work to be done that cannot be
completed by following the usual sequence of adit
procedures; records questions concerning the audit
investigation
Outside documentation – index and interfile of outside
documentation s.a. confirmation replies, copies of client
agreements
Two main divisions of audit working papers
Cabrera p.814 for examples
(1) Current audit file
 Supports assertions embodied in the FS
 Contains all papers accumulated during
the current year’s examination
(2) Permanent file
 Contains information of continuing
interest
 Historical/continuing nature of data
pertinent to current examination
 Convenient source of info about the
audit that is of continuing use from year
to year
Other files
(1) Tax files – contain info relevant to current and
past income tax and other business tax
obligations
(2) Correspondence file – contained all
correspondences/letters, from or in behalf of a
client
Qualities of good working papers
1. Complete; should not require additional oral
explanation
2. Factual, accurate, free from clerical &
computational errors
3. Clearly indicates nature and extent of work
performed
4. Concise; limited to essentials
5. Prepared in a neat and orderly manner to
facilitate review of work done
Working papers generally provide
1. Evidence of compliance with standards
2. Sufficient data to demonstrate that FS are in
agreement with client records
3. Clear indication of work performed
a. Memorandum
b. Initializing appropriate steps
 c. Tick marks + explanations of notations Notes from lecture
4. Indication of solutions to exceptions or unusual
matter SIGN OFF – prepared by, reviewed by
5. Appropriate connections of the auditor on PBC if prepared by client
significant aspects of the engagement
Departure from relevant requirement must be
Who owns the working papers? document
Auditor (RA 9298 Sec. 29); client has no rights - How alternative procedures obtained goal
Exception: if there is an agreement between auditor and - Reasons for departure
client
Review notes
Confidentiality of working papers - Supervisor lists down chever
General rule: working papers cannot be shown to third - May be consolidated
parties - Reviewer may just add comments

Exceptions Indexing
1. Disclosure is permitted by law and authorized by - Use of lettering or numbering system
client
2. Disclosure is required by law Cross-indexing/cross-referencing
a. Production of documents or other provision - Important to provide a trail useful to
of evidence in course of legal proceedings supervisors in reviewing the working papers
(subpoena)
b. Disclosure to appropriate public authorities
of infringement of the law that come to
light
3. There is a professional duty or right to disclose,
when not prohibited by law
a. Comply with quality review of professional
body
b. Respond to inquiry or investigation
c. Protect professional interests of accountant
in legal proceedings
d. To comply with technical standards and
ethics requirements

Revised Code of Ethics Sec 140

- Principle of confidentiality imposes obligation
on professional accountants to refrain from:
 Disclosing information unless there is
legal/professional right
 Using confidential info for personal
advantage
- Maintain confidentiality even in a social
environment; be alert to possibility of
inadvertent disclosure
- Maintain confidentiality of info disclosed by
prospective client or employer
- Maintain confidentiality of info within the firm
- Take reasonable steps to ensure that staff
under his control respect accountant’s duty of
confidentiality
- Compliance with principle of confidentiality
continues even after the end of relationships