Audit Documentation and Quality Management - ACCA Audit and Assurance (AA)

Summary

This Open Tuition lecture focuses on audit documentation and quality control, emphasizing the importance of proper documentation to ensure audit work is done correctly, facilitate review processes, assist future audits, and maintain methodical procedures. It distinguishes between permanent and current files, detailing their contents and uses. Additionally, it covers the quality management standard ISA 220, highlighting the engagement partner's responsibilities and the six components of quality management: leadership, ethical requirements, acceptance, resources, engagement performance, and monitoring and remediation.

Takeaways

• 📄 **Audit Documentation Purpose**: To ensure work is done properly, assist in reviews, aid future audits, and ensure methodical approach.
• 🔍 **Audit Working Papers**: Divided into permanent and current files, with permanent files serving as a reference for future audits and current files for the ongoing year.
• 📐 **Structure of Working Papers**: Organized logically by balance sheet sections, starting from financial statements to detailed audit tests.
• 📝 **Contents of Working Papers**: Include client details, audit tests, and conclusions, with clear documentation of preparation and review.
• 🔑 **Quality Management (ISA 220)**: Focuses on the responsibilities of the engagement partner to ensure audits follow standards and legal requirements.
• 👥 **Components of Quality Management**: Include leadership, ethical requirements, acceptance and continuance, resources, engagement performance, and monitoring and remediation.
• 👩‍💼 **Engagement Partner's Role**: Actively involved in all aspects of the audit process, including direction, supervision, and review.
• 📈 **Judgment Areas**: Key areas where the engagement partner must exercise judgment include materiality, use of auditors' experts, significant risks, going concern, and the final audit opinion.
• 🔄 **Engagement Quality Review**: For listed and high-risk clients, a second partner reviews the audit before the report is signed to ensure quality.
• 🔍 **Monitoring and Remediation**: Regular checks and reviews of audit files to ensure quality management is in place, with immediate fixes for identified issues.

Q & A

Why is audit documentation important?

Audit documentation is crucial to ensure that audit work has been conducted properly, assist in the review process, aid future audits by providing a clear understanding of the approach taken, and ensure that the audit is methodical, reducing the chance of oversights.

What are the potential consequences of inadequate audit documentation?

Inadequate audit documentation could lead to the inability to defend against negligence claims, as audit working papers may be required in court. It could also hinder the review process, impede efficiency in future audits, and fail to ensure methodical audit procedures.

What is the purpose of the permanent file in audit documentation?

The permanent file serves as a reference document that is consulted every year. It contains information useful for future audits, such as details of bankers, lawyers, the accounting system, organization charts, and legal requirements of the company.

What is typically found in the current file of audit documentation?

The current file contains information relevant to the current year's audit, including the financial statements, working papers for the current year, audit programs, and letters such as the letter of representation and the management letter.

What is the significance of the letter of engagement in audit documentation?

The letter of engagement is significant as it is signed at the start of the audit and outlines the terms of the audit engagement. It is usually kept in the permanent file and is not reissued every year unless there are changes in circumstances or doubts about the directors' understanding.

How does the structure of audit working papers contribute to the audit process?

The structure of audit working papers, which logically separates sections according to the balance sheet or income statement, ensures that all aspects of each item are tested and reviewed. This structure facilitates clear cross-referencing and aids in the review process by showing that all necessary audit tests have been conducted.

What does ISA 220 focus on in terms of audit quality management?

ISA 220 focuses on the responsibilities of the engagement partner to ensure that the audit is conducted in accordance with auditing standards and legal requirements, and that the audit report is appropriate based on the work done.

What are the six components of quality management in an audit as per ISA 220?

The six components of quality management in an audit are Leadership, Ethical Requirements, Acceptance and Continuance, Resources, Engagement Performance, and Monitoring and Remediation.

Why is the engagement quality review important in audits of listed and high-risk clients?

The engagement quality review is important as it involves a second partner who assesses the audit work before the report is signed, ensuring the quality of the audit and the appropriateness of the conclusions reached, which is particularly crucial for listed and high-risk clients.

What is the role of direction, supervision, and review in the audit process?

Direction involves briefing the audit team, supervision is an active process to ensure team members are capable and may involve reassigning tasks or providing training, and review focuses on areas where judgment is exercised, such as materiality determination, use of auditors' experts, and the final audit opinion.