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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
APPENDIX
A
Background
and Basis for
Conclusions
Introduction
A1.
This appendix summarizes considerations that the
Public Company Accounting
Oversight
Board ("PCAOB" or "Board") deemed significant in
developing this standard.
This
appendix includes reasons for accepting certain
views and rejecting others.
A2.
Section 103(a)(2)(A)(i) of the Sarbanes-Oxley
Act of 2002 (the "Act") directs
the
Board
to establish auditing standards that require
registered public accounting firms
to
prepare
and maintain, for at least seven years, audit
documentation "in sufficient
detail
to
support the conclusions reached" in the
auditor's report. Accordingly, the Board
has
made
audit documentation a priority.
Background
A3.
Auditors support the conclusions in their
reports with a work product called
audit
documentation,
also referred to as working papers or work
papers. Audit
documentation
supports the basis for the conclusions in the
auditor's report. Audit
documentation
also facilitates the planning, performance, and
supervision of the
engagement
and provides the basis for the review of the
quality of the work by
providing
the
reviewer with written documentation of the
evidence supporting the
auditor's
significant
conclusions. 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.
A4.
The Board's standard on audit documentation is
one of the fundamental building
blocks
on which both the integrity of audits and the
Board's oversight will rest.
The
Board
believes that the quality and integrity of an
audit depends, in large part, on
the
existence
of a complete and understandable record of the
work the auditor performed,
the
conclusions the auditor reached, and the
evidence the auditor obtained
that
supports
those conclusions. Meaningful reviews, whether
by the Board in the context of
its
inspections or through other reviews, such as
internal quality control reviews,
would
be
difficult or impossible without adequate
documentation. Clear and
comprehensive
audit
documentation is essential to enhance the
quality of the audit and, at the
same
time,
to allow the Board to fulfill its mandate to
inspect registered public
accounting
firms
to assess the degree of compliance of those
firms with applicable standards
and
laws.
A5.
The Board began a standards-development project
on audit documentation by
convening
a public roundtable discussion on September 29,
2003, to discuss issues
and
hear views on the subject. Participants at the
roundtable included
representatives
from
public companies, public accounting firms,
investor groups, and regulatory
organizations.
A6.
Prior to this roundtable discussion, the Board
prepared and released a
briefing
paper
on audit documentation that posed several
questions to help identify the
objectives
– and the appropriate scope and form – of audit
documentation. In addition,
the
Board asked participants to address specific
issues in practice relating to,
among
other
things, changes in audit documentation after
release of the audit report,
essential
elements
and the appropriate amount of detail of audit
documentation, the effect on
audit
documentation of a principal auditor's decision
to use the work of other
auditors,
and
retention of audit documentation. Based on
comments made at the
roundtable,
advice
from the Board's staff, and other input the
Board received, the Board
determined
that
the pre-existing standard on audit
documentation, Statement on Auditing
Standards
("SAS")
No. 96, Audit Documentation, was insufficient
for the Board to discharge
appropriately
its standard-setting obligations under Section
103(a) of the Act. In
response,
the Board developed and issued for comment, on
November 17, 2003, a
proposed
auditing standard titled, Audit
Documentation.
A7.
The Board received 38 comment letters from a
variety of interested parties,
including
auditors, regulators, professional associations,
government agencies, and
others.
Those comments led to some changes in the
requirements of the standard.
Also,
other changes made the requirements easier to
understand. The following
sections
summarize significant views expressed in those
comment letters and the
Board's
responses to those comments.
Objective
of This Standard
A8.
The objective of this standard is to improve
audit quality and enhance
public
confidence
in the quality of auditing. Good audit
documentation improves the quality
of
the
work performed in many ways, including, for
example:
��
Providing a record of actual work performed,
which provides assurance
that
the auditor accomplishes the planned
objectives.
��
Facilitating the reviews performed by
supervisors, managers,
engagement
partners,
engagement quality reviewers,1/ and PCAOB
inspectors.
��
Improving effectiveness and efficiency by
reducing time-consuming, and
sometimes
inaccurate, oral explanations of what was done
(or not done).
1/
The engagement quality reviewer is referred to
as the concurring partner
reviewer
in the membership requirements of the AICPA SEC
Practice Section. The
Board
adopted certain of these membership requirements
as they existed on April 16,
2003.
Some firms also may refer to this designated
reviewer as the second partner
reviewer.
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