Audit Documentation: Frequently Asked Questions (FAQs)
Why is the AICPA focused on improving audit documentation?
The AICPA Peer Review Program has detected significant rates of non-conformity with AU-C section 230, Audit Documentation.
The Peer Review Program performs enhanced oversights in which subject matter experts from public practice review a sample of engagements that were subject to peer review. The AICPA tracks the number of engagements that did not conform to applicable professional standards in all material respects (commonly referred to as “materially non-conforming” engagements).
The experts found that approximately one in four engagements selected for oversight was materially non-conforming due to a lack of adequate audit documentation.
Can an auditor meet their overall audit objectives without documenting their work?
No. Proper documentation is integral to the achievement of an auditor’s overall objectives.
Paragraph .12 of AU-C 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards, states:
.12 The overall objectives of the auditor, in conducting an audit of financial statements, are to
a. obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with an applicable financial reporting framework; and
b. report on the financial statements, and communicate as required by GAAS, in accordance with the auditor's findings.
AU-C 200, paragraph .19, indicates that, “To obtain reasonable assurance, the auditor should obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level and thereby enable the auditor to draw reasonable conclusions on which to base the auditor's opinion.”
Meeting the requirements of AU-C 230 and the specific documentation requirements of other relevant AU-C sections provides evidence of the auditor’s basis for his or her audit opinion as well as evidence that the audit was planned and performed in accordance with generally accepted auditing standards (GAAS) (AU-C 230 paragraph 02).
If sufficient appropriate audit evidence necessary to support the audit opinion was not appropriately documented, then the audit was not conducted in accordance with GAAS, and the auditor would not have a basis to render an opinion.
What level of documentation is required by the auditing standards?
AU-C 230 addresses documentation requirements and the characteristics of working papers that should be retained. Importantly, paragraph .08 states:
.8 The auditor should prepare audit documentation that is sufficient to enable an experienced auditor, having no previous connection with the audit, to understand
a. the nature, timing, and extent of the audit procedures performed to comply with GAAS and applicable legal and regulatory requirements;
b. the results of the audit procedures performed, and the audit evidence obtained; and
c. significant findings or issues arising during the audit, the conclusions reached thereon, and significant professional judgments made in reaching those conclusions.
These should be documented for any procedure that provides audit evidence that is necessary to support the audit opinion.
What if an auditor’s documentation is incomplete? Can oral explanation supplement the documentation that exists?
As AU-C 230 paragraph .A7 notes, if the auditor met the requirements of AU-C 230 but clarification is needed, oral explanation may be used to provide that clarification.
However, if an auditor performs a procedure that provides evidence that is necessary to support the audit opinion, and the auditor’s documentation of that evidence does not meet the requirements of AU-C 230, the auditor has not complied with GAAS, and no amount of oral explanation can serve as a substitute.
How could these requirements impact a firm during their peer review?
In reviewing an engagement, a peer reviewer must determine whether the auditor has obtained sufficient appropriate audit evidence to reduce audit risk to an acceptably low level and support the auditor’s opinion.
Meeting the requirements of AU-C 230 provides evidence of the auditor’s basis for his or her audit opinion as well as evidence that the audit was planned and performed in accordance with generally accepted auditing standards (GAAS).
If a peer reviewer determines that audit evidence necessary to support the audit opinion was not documented in accordance with AU-C 230, the reviewer will conclude that the audit was not conducted in accordance with GAAS and that the auditor failed to obtain sufficient appropriate audit evidence to support the audit opinion.
In such instances, the peer reviewer will recommend that the firm consider their responsibilities under AU-C section 585, Consideration of Omitted Procedures After the Report Release Date, and will follow up with the firm to ensure that appropriate action has been taken.
What is the AICPA doing to help firms comply with the audit documentation requirements?
To support firms, the AICPA has developed several free resources that are accessible at aicpa.org/documentation.
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