LUTZ BUSINESS INSIGHTS

 

How To Achieve Outstanding Audit Documentation

JOE HARTMAN, AUDIT DIRECTOR

It is the auditor’s responsibility to prepare documentation that provides sufficient and appropriate record of the basis for the auditor’s report and evidence that the audit was planned and performed in accordance with generally accepted auditing standards (GAAS) and applicable legal and regulatory requirements.

Examples of audit documentation work papers include the following:

  • Audit plans
  • Issues memorandum
  • Summaries of significant findings/issues
  • Letters of confirmation or representation
  • Checklists
  • Correspondence
  • Analysis

Most auditors have heard the saying “Work papers need to stand alone”, meaning a reviewer shouldn’t have to ask additional questions to understand the purpose of the work paper, what was tested, findings and how the conclusion was reached.  Someone needs to be able to easily pick up their work papers and continue where they left off—there should be no undocumented knowledge pertinent to understanding the work.

Here is a list of common documentation examples that should be considered to be included as part of an individual audit work paper:

1. Purpose: What is the purpose of the document and why it’s included?  Give the document a name and describe what it is used for, unless it’s completely obvious.

2. Source: Note who provided the document to you (name and title).

3. Tick and tie the documentation: For example, you should add a “tickmark” to an account reconciliation total to tie out to the ledger.  The meaning of each “tickmark” must be clearly explained within each piece of audit documentation or on a separate document that explains the “tickmark” codes.  Standard “tickmark” codes may be used and explained on a standard “tickmark” legend/key.

4. Nature: Document (or reference where it is documented) the nature of the audit procedures you are performing.

5. Timing: Document (or reference where it is documented) the date range of your tests: January through April, or a different population?

6. Extent: Document (or reference where it is documented) how many samples are you selecting and note the reasoning for selecting that size.  Each audit firm or audit department should have a sample size guidance to follow (e.g., use of sampling form, etc.).

7. Exceptions or deviations noted: Any significant findings or issues that arise during the audit should be documented and how they were addressed and the conclusions reached.

8. Conclusion: This is the overall determination if the objective of the auditor has been met.

Overall an auditor should prepare audit documentation so it’s sufficient for an experienced auditor, having no previous connection with the audit, to understand the nature, timing, and extent of the audit procedures performed, along with the results, evidence obtained, any significant findings and finally the conclusions reached along with any significant professional judgments made in reaching those conclusions.

ABOUT THE AUTHOR

402.827.2360

jhartman@lutz.us

LINKEDIN

JOE HARTMAN + AUDIT DIRECTOR

Joe Hartman is an Audit Director at Lutz with significant experience in providing accounting, auditing and consulting services to privately-held companies. He works with various industries including services, franchise, manufacturing, construction, printing, and distribution.

AREAS OF FOCUS
AFFILIATIONS AND CREDENTIALS
  • American Institute of Certified Public Accountants, Member
  • Nebraska Society of Certified Public Accountants, Member
  • Certified Public Accountant
EDUCATIONAL BACKGROUND
  • BSBA in Accounting, University of Nebraska, Lincoln
COMMUNITY SERVICE
  • Youth Sports Coach

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