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Sarbanes Oxley Act -
Auditing Standards |
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Public
Company Accounting Oversight
Board
Bylaws
and Rules – Standards –
AS3
June
9, 2004
AUDITING AND RELATED
PROFESSIONAL PRACTICE
STANDARDS
Auditing
Standard No. 3 – Audit
Documentation
Introduction
1.
This standard establishes general requirements
for documentation the auditor
should
prepare and retain in connection with
engagements conducted pursuant to
the
standards
of the Public Company Accounting Oversight Board
("PCAOB"). Such
engagements
include an audit of financial statements, an
audit of internal control over
financial
reporting, and a review of interim financial
information. This standard does
not
replace
specific documentation requirements of other
standards of the PCAOB.
Objectives of Audit
Documentation
2.
Audit documentation is the written record of the
basis for the auditor's
conclusions
that provides the support for the auditor's
representations, whether those
representations
are contained in the auditor's report or
otherwise. Audit documentation
also
facilitates the planning, performance, and
supervision of the engagement, and
is
the
basis for the review of the quality of the work
because it provides the reviewer
with
written
documentation of the evidence supporting the
auditor's significant
conclusions.
Among
other things, audit documentation includes
records of the planning and
performance
of the work, the procedures performed, evidence
obtained, and
conclusions
reached by the auditor. Audit documentation also
may be referred to as
work papers
or working
papers.
Note:
An auditor's representations to a company's
board of directors or audit
committee,
stockholders, investors, or other interested
parties are usually
included
in the auditor's report accompanying the
financial statements of the
company.
The
auditor also might make oral representations to
the company or
others,
either on a voluntary basis or if necessary to
comply with professional
standards,
including in connection with an engagement for
which an auditor's
report
is not issued. For example, although an auditor
might not issue a report in
connection
with an engagement to review interim financial
information, he or she
ordinarily
would make oral representations about the
results of the review.
3.
Audit documentation is reviewed by members of
the engagement team
performing
the work and might be reviewed by others.
Reviewers might include, for
example:
a.
Auditors who are new to an engagement and review
the prior year's
documentation
to understand the work performed as an aid in
planning
and
performing the current
engagement.
b.
Supervisory personnel who review documentation
prepared by assistants
on
the engagement.
c.
Engagement supervisors and engagement quality
reviewers who review
documentation
to understand how the engagement team
reached
significant
conclusions and whether there is adequate
evidential support
for
those conclusions.
d.
A successor auditor who reviews a predecessor
auditor's audit
documentation.
e.
Internal and external inspection teams that
review documentation to
assess
audit quality and compliance with auditing and
related professional
practice
standards; applicable laws, rules, and
regulations; and the
auditor's
own quality control policies.
f.
Others, including advisors engaged by the audit
committee or
representatives
of a party to an acquisition.
Audit Documentation
Requirement
4.
The auditor must prepare audit documentation in
connection with each
engagement
conducted pursuant to the standards of the
PCAOB. Audit documentation
should
be prepared in sufficient detail to provide a
clear understanding of its
purpose,
source,
and the conclusions reached. Also, the
documentation should be
appropriately
organized
to provide a clear link to the significant
findings or issues.1/ Examples of
audit
documentation
include memoranda, confirmations,
correspondence, schedules,
audit
programs,
and letters of representation. Audit
documentation may be in the form
of
paper,
electronic files, or other
media.
1/
See paragraph 12 of this standard for a
description of significant
findings
or
issues.
5.
Because audit documentation is the written
record that provides the support
for
the
representations in the auditor's report, it
should:
a.
Demonstrate that the engagement complied with
the standards of the
PCAOB,
b.
Support the basis for the auditor's conclusions
concerning every relevant
financial
statement assertion, and
c.
Demonstrate that the underlying accounting
records agreed or reconciled
with
the financial statements.
6.
The auditor must document the procedures
performed, evidence obtained,
and
conclusions
reached with respect to relevant financial
statement assertions.2/ Audit
documentation
must clearly demonstrate that the work was in
fact performed. This
documentation
requirement applies to the work of all those who
participate in the
engagement
as well as to the work of specialists the
auditor uses as evidential matter
in
evaluating
relevant financial statement assertions. Audit
documentation must contain
sufficient
information to enable an experienced auditor,
having no previous connection
with
the engagement:
a.
To understand the nature, timing, extent, and
results of the procedures
performed,
evidence obtained, and conclusions reached,
and
b.
To determine who performed the work and the date
such work was
completed
as well as the person who reviewed the work and
the date of
such
review.
Note:
An experienced auditor has a reasonable
understanding of audit
activities
and
has studied the company's industry as well as
the accounting and auditing
issues
relevant to the industry.
2/
Relevant financial statement assertions are
described in paragraphs 68-70
of
PCAOB Auditing Standard No. 2, An Audit of
Internal Control Over
Financial
Reporting Performed
in Conjunction with An Audit of Financial
Statements.
7.
In determining the nature and extent of the
documentation for a financial
statement
assertion, the auditor should consider the
following factors:
•
Nature of the auditing
procedure;
•
Risk of material misstatement associated with
the assertion;
•
Extent of judgment required in performing the
work and evaluating the
results,
for example, accounting estimates require
greater judgment and
commensurately
more extensive documentation;
•
Significance of the evidence obtained to the
assertion being tested; and
•
Responsibility to document a conclusion not
readily determinable from the
documentation
of the procedures performed or evidence
obtained.
Application
of these factors determines whether the nature
and extent of audit
documentation
is adequate.
8.
In addition to the documentation necessary to
support the auditor's final
conclusions,
audit documentation must include information the
auditor has identified
relating
to significant findings or issues that is
inconsistent with or contradicts
the
auditor's
final conclusions. The relevant records to be
retained include, but are not
limited
to, procedures performed in response to the
information, and records
documenting
consultations on, or resolutions of, differences
in professional judgment
among
members of the engagement team or between the
engagement team and others
consulted.
9.
If, after the documentation completion date
(defined in paragraph 15), the
auditor
becomes
aware, as a result of a lack of documentation or
otherwise, that audit
procedures
may not have been performed, evidence may not
have been obtained, or
appropriate
conclusions may not have been reached, the
auditor must determine, and if
so
demonstrate, that sufficient procedures were
performed, sufficient evidence
was
obtained,
and appropriate conclusions were reached with
respect to the relevant
financial
statement assertions. To accomplish this, the
auditor must have persuasive
other
evidence. Oral explanation alone does not
constitute persuasive other
evidence,
but
it may be used to clarify other written
evidence.
•
If the auditor determines and demonstrates that
sufficient procedures were
performed,
sufficient evidence was obtained, and
appropriate conclusions
were
reached, but that documentation thereof is not
adequate, then the
auditor
should consider what additional documentation is
needed. In
preparing
additional documentation, the auditor should
refer to paragraph
16.
•
If the auditor cannot determine or demonstrate
that sufficient procedures
were
performed, sufficient evidence was obtained, or
appropriate
conclusions
were reached, the auditor should comply with the
provisions
of
AU sec. 390, Consideration of Omitted Procedures
After the Report
Date.
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