NSA 230: Audit Documentation (Chapter Synopsis)

Overview
Property of the
Audit file
Audit auditor
Documentation Completion
Memorandum
Introduction

record of audit procedures

relevant audit evidence obtained

conclusion the auditor reached

Audit
Documentation

Record of Also Known as

Audit Procedures Audit Evidence Conclusion Workpapers

Performed Obtained Reached

The standards does not in any way limit the specific documentation requirements of other NSA’s. In other words, if other NSAs
prescribed more documentation requirements, those documentation are also to be maintained.
Nature and Purpose of Audit Documentation

Nature and purpose of

audit documentation

Basic Additional Purpose

Evidence Evidence Plan and Perform Supervision Accountability Future Auudits QCR and Inspection

Assisting in Enabling the Retaining a record of Enabling the quality

That the audit was
of the auditor's basis
planned and
for the conclusion
performed
about the acheivement In accrodance with
of the overall SAs and applicable
objectives of the legal and reguatory
auditor requirements
Assisting members of
engagement team to engagement team to matters of contining control review and
the engagement team
plan and perform be accountible for its significance of future external inspections as
responsible for
audit work audits per NSQC1
supervision to direct
and supervise the
audit work, and to
discharge their review
responsibilities

Importance of Audit Documentation

Auditor will not be considered as negligent
• If he has carried his work in accordance
✓ With SA’s and
✓ Applicable laws and regulations
Whether the auditor has performed an audit in accordance with SAs and law and regulation is determined by the
• Audit procedures performed in the circumstances, the
 • Sufficiency and appropriateness of the audit evidence obtained as a result thereof
• And the suitability of the auditor’s report based on an evaluation of that evidence in light of the overall objectives of the auditor.
All this can be checked by Audit Documentation.

Form, Content and Extent of Audit Documentation

The auditor shall prepare audit documentation that is sufficient to enable an experienced auditor to understand.
a) The nature, timing and extent of the audit procedures
b) The results of the audit procedures performed, and the audit evidence obtained; and
c) Significant matters arising during the audit and the conclusions reached thereon, significant professional judgements made in reaching
those conclusions.
The form, content and extent of audit documentation depends on factors such as
The size and complexity of the entity

Factor affecting forms content the nature of the audit procedures to be performed
and Extent of Documentation
The identified risks of material misstatements

Significance of audit evidence

Nature and Extent of Exception identified

Basis of Conclusion

The audit of Methodology and Tools used.

Experience Auditor:
An individual who has practical audit experience, and a reasonable understanding of
✓ Audit processes
 ✓ NSAs and applicable legal and regulatory requirements
✓ The business environment in which the entity operates and
✓ Auditing and financial reporting issues relevant to the entity’s industry.
Objective of the auditor
To prepare documentation that provides-
a) A sufficient and appropriate record of the basis for the auditor’s report and
b) Evidence that the audit was planned and performed in accordance with SAs and applicable legal and regulatory requirements
Example of Audit Documentations

Correspondence
(including e-
mail) concerning
significant
matters
Letter of
Confirmation Audit
and letter of Programme
representation

Audit
Documentation

Summary of
significant Analysis
matters

Issues
Memoranda

Audit File Documentation

Audit file may be defined as one or more folders or other storage media, in physical or electronic form, containing the records that comprise
the audit documentation for a specific engagements
Important Aspects Regarding Audit files

An appropriate time limit within which to complete the assembly of the final audit file is ordinarily not more than 60 days after the date
of the auditors report.

Changes may be made to the audit documentation during the final assembly process, if they are administrative in nature

Minimum retention period of audit file is 5 years from the date of audit report.

Completion memorandum (audit documentation summary)

The auditor may consider it helpful to prepare and retain as part of audit documentation a summary that describes
1. the significant matters identified during the audit
2. how they were addressed.

Such a summary may facilitate effective and efficient review and inspection of the audit documentation

Further, the preparation of such a summary may assist auditor's consideration of the significant matters.

It may also help the auditor to consider whether there is any individual relevant ISA objective that the auditor cannot acheive that would
prevent the auditor from acheiving the overall objective of the auditor
Ownership of Audit Documentation

NepalStandard on Quality (NSQC) He may at his discretion, make

provides that audit documentation is protions of, or extracts from, audit
the property of the auditor documentation available to clients

Matters arising after the date of auditor’s report

If, in exceptional circumstances, the auditor performs new or additional audit procedures or draws new conclusions after the date of the
auditor’s report , the auditor shall document
✓ The circumstances encountered
✓ Additional audit procedures performed, audit evidence obtained and conclusion reached
✓ When and by whom the resulting changes to audit documentation were made and reviewed
Questions and Answer

Q. You receive a letter from the Managing Director of the company under audit, asking you to give a copy of your entire
file containing working papers and the audit program. He argues that since these papers contains information concerning
his company, he has a right to ask for the documents. Moreover, the audit program will help the company in coordinating
its own related activities and thus result in a more effective audit next year.

NSA 230 requires the auditor to maintain appropriate documentation for future reference. Documents prepared, acquired or brought
into being by the professional accountant solely for his own purpose as principal belongs to him. Thus, documents prepared by the
professional accountant are regarded as exclusive property of him. So, the auditor should refuse to give the entire file to the Managing
Director of the company.

Q. The company demanded to hand over the external confirmations of debtors and creditors directly circularized by you
during the course of an audit of the company.

As per NSA 230: Audit Documentation: the auditor should adopt appropriate procedures for maintaining the confidentiality and safe
custody of the working papers and for retaining them for a period sufficient to meet the needs of the practice and in accordance with
legal and professional requirements of record retention.
Working papers are the property of the auditor. Although portions of or extracts from the working papers may be made available
to the client at the discretion of the auditor, they are not a substitute for the client’s accounting records.
The confirmations letters obtained by the auditor form audit documentation and are the property of the auditor as per NSA 230.
Thus, the auditor may wish to provide a copy of the same to the company. However, the company cannot demand and force the
auditor to provide the conformation certificates received by the auditor.

Q. The statutory auditor of the Holding Company “XYZ Ltd.” demands for the working papers of the auditors of the subsidiary company
“ABC Ltd.” How would you deal with the given circumstances if you are the auditor of ABC Ltd.?

As per NSA 230 "Audit Documentation", working papers are the property of the auditor. the auditor may at his discretion,
make portion of or extracts of his working papers available to his clients.
General Principles of Code of Ethics imposes an obligation on all professional accountants to maintain confidentiality of information
acquired as a result of professional or business relationship unless there is legal or professional right or duty to disclose.
NSA 600, “Special Considerations – Audit of Group Financial Statements (including the work of component auditors)" also states
that an auditor should respect the confidentiality of information acquired during the course of his audit work and should not
disclose such information unless there is legal or professional duty to disclose.

Except to the extent stated above, the auditor is not required to provide the client or other auditors of the same enterprise or its
related enterprises such as a parent or a subsidiary, access to his audit working papers. The statutory auditor of an enterprise does
not have right of access to the audit working papers of the branch auditor. An auditor can rely on the work of another auditor,
without having any right of access to the audit working papers of other auditor.
Hence, statutory auditor of holding company cannot have access to audit working papers of the subsidiary company's auditor. He
can, however, ask the auditors to answer certain questions about the manner in which the audit is conducted and certain other
clarifications regarding audit process. The auditor of subsidiary shall cooperate the holding company’s auditor in all material aspects
and may even involve him in the audit work if required.

ABC and Associates has a policy to retain working paper file for 4 years after signing of report, due to shortage of space
in its office, unless the group auditor or any law requires the retention for a longer period.

Retention period of working papers: NSQC 1 (or national requirements that are at least as demanding) requires firms to
establish policies and procedures for the retention of engagement documentation. Accordingly, the firm can establish a policy of
retention period for working paper. However, NSA 230 requires that the retention period for audit engagements ordinarily should
not be shorter than five years from the date of the auditor’s report, or, if later, the date of the group auditor’s report.

On the basis of above requirements of the standards it seems that the working paper retention policy of ABC and Associates is not
appropriate and hence it can be suggested that ABC and Associates should review its policy of retention period to meet the
requirement of NSA 230.