Topic: Audit Documentation

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AA – Nov 2022 – L2 – Q2a – Audit Documentation Requirements

Overview of audit documentation requirements per ISA 230, including reasons and required contents.

The International Standards on Auditing (ISA) 230 deals with the auditor’s responsibility to prepare audit documentation for an audit of financial statements.

Required:
a. State FIVE reasons for preparing audit documentation. (5 Marks)
b. Highlight the requirements of ISA 230 on audit documentation. (3 Marks)
c. State FIVE contents each of current and permanent files. (10 Marks)
d. Explain who owns audit working papers and why. (2 Marks)

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  • 20 Marks

AA – May 2021 – L2 – Q5 – Audit Evidence

Explanation of sufficient and appropriate audit evidence, factors in deciding audit evidence amount, auditor actions on inadequate evidence, and audit documentation rationale.

JAK Professional Services is a member firm of James Candle International in Cayman Islands. The member firm’s practice review exercise has just been concluded. As part of the global firm, practice reviews are done yearly on selected engagement files where member firms review one another. Some of the issues included in the review notes raised on JAK Professional Services audit files are as follows:

i. Lack of sufficient and appropriate audit evidence regarding audit of cash and bank as well as inventory balances. This was partly due to the fact that no evidence existed in the file regarding physical cash and inventory count which were material;

ii. No proper documentation of confirmation replies received from banks, receivables, and solicitors;

iii. No cash flow working documentation to show how the figures on the cash flow statements in the financial statements were arrived at;

iv. Improper documentation of how expected credit loss on financial instruments in the financial statements were arrived at; and

v. Figures in the financial statements could not be traced to the respective working papers.

As an experienced auditor, some of the trainees were not impressed about the report and have approached you for clarification.

You are required to explain:

a. Meaning of ‘sufficient and appropriate audit evidence’ (5 Marks)
b. Factors to be considered when deciding amount of audit evidence needed (4 Marks)
c. What auditors should do in case of inadequate audit evidence (5 Marks)
d. Reasons for sufficient and appropriate audit documentation (6 Marks)

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  • 15 Marks

AA – May 2017 – L2 – SC – Q6 – Audit Documentation

Explanation of audit documentation purpose, and distinction between permanent and current audit files.

ISA 230 requires the Auditor to prepare documentation on a timely basis, sufficient to enable an experienced auditor, with no previous connection with the audit, to understand significant matters arising during the audit and the conclusions reached thereon.

You are required to:

  1. (a) Explain THREE reasons for preparing audit working papers. (3 Marks)
  2. (b) State FIVE other purposes of audit documentation. (5 Marks)
  3. (c) List FIVE items of information that might be included in the Permanent Audit File. (5 Marks)
  4. (d) Explain what differentiates the Permanent Audit File from the Current Audit File. (2 Marks)

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  • 15 Marks

AA – May 2023 – L2 – SC – Q6 – Audit Documentation

Types, importance, and determining conditions for audit working paper files.

At one of the seminars you attended on legal and regulatory frameworks of financial reporting, it was stated that one of the duties of the Financial Reporting Council of Nigeria (FRC) is to provide legal and regulatory frameworks for minimum practice guidelines for auditors in Nigeria. To do this, the FRC ensures that all activities of Registered Auditors, other Assurance Providers, and Audit Committee members are regulated to sustain best ethical practices and promote quality audit services.

It is part of the obligations of the Financial Reporting Council of Nigeria to conduct practice reviews of registered professionals. You learned that, for effective monitoring, the Audit Regulation mandates external auditors to create an audit file for each statutory audit carried out and to retain the working papers and other materials supporting the audit report conclusions for a minimum of seven years.

A classmate from university, now a banker, attended the seminar with you and has asked for further clarification on what is meant by “working paper” and why regulators are concerned with audit file reviews.

Required:

a. Identify the different types of audit working paper files. (5 Marks)

b. Outline the importance of audit working paper files. (5 Marks)

c. Explain briefly the conditions that determine the size of audit working papers. (5 Marks)

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  • 15 Marks

AA – Nov 2015 – L2 – Q6 – Audit Documentation

Discussing the retention of working papers, justification for retaining them, and types of information found in audit files.

Delta, Gamma, and Co. are the auditors to Hope Limited. The firm proposes to move their office to new premises and wishes to destroy old audit working papers beyond six years while others are to be converted into electronic copies by using scanners. Hope Limited, having decided to discontinue with Delta, Gamma & Co. as its auditors, has requested that the firm should hand over to their new auditors all the audit working papers of the previous years and the permanent audit file.

Required:
a. Advise Delta, Gamma & Co. on the above scenarios. (5 Marks)
b. Justify why it is important to maintain and keep audit working papers. (5 Marks)
c. State FIVE types of information you would expect to see in each of the following:
i. Permanent audit file
ii. Current working paper file (5 Marks)

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  • 20 Marks

AA – Nov 2016 – L2 – Q4 – Audit Documentation

This question covers the need for a letter of representation, its content, and steps to be taken when management refuses to sign the letter.

Polyet Nigeria Plc is into the manufacture of plastic materials. It has its factory in Apapa, Lagos, with distribution outlets spread across the country. A new Managing Director, Mr. KO has just been appointed. Shortly after the new Managing Director was appointed, your firm concluded the audit of the Company’s Financial Statements. A request was made from the newly engaged Managing Director for a letter of representation. He informs you in no uncertain terms that the company engaged you as the auditor to take responsibilities for your audit opinion, and that he is not ready to repeat in writing the information that the Chief Finance Officer, other accounting staff, and himself provided to you during the audit exercise. You tried to explain to him that it is standard practice to request a letter of representation from the Management, but he remained adamant.

Required:
a. Explain the need for the auditor to obtain a letter of representation from the management. (5 Marks)
b. Itemise TEN contents of a Letter of Representation. (10 Marks)
c. What steps should you take as the auditor if the Managing Director still persists in his refusal to sign the letter? (5 Marks)
(Total 20 Marks)

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  • 5 Marks

AA – Nov 2016 – L2 – Q2c – Audit Documentation

This question details the elements that must be included in an engagement letter issued to a new audit client, covering responsibilities, terms, and scope of the audit.

Discuss in detail the content of an engagement letter to be issued to a new client.

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  • 15 Marks

AA – May 2022 – L2 – SC – Q7 – Audit Documentation

Discuss factors for assessing materiality and principles for evaluating the impact of misstatements.

Materiality is a fundamental concept in both auditing and accounting. It reflects the fact that users of financial statements find it useful even if they are not 100% accurate.

a. What are the factors that an auditor will consider when assessing whether or not an item is material? (5 Marks)
b. State the principles an auditor will apply in the concept of materiality:
i. When planning and performing the audit. (5 Marks)
ii. When evaluating the effect of misstatements on the financial statements. (5 Marks)

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  • 20 Marks

AA – Nov 2019 – L2 – Q5 – Audit Documentation

Discuss the archiving of audit working papers, their purposes, types, contents, and ownership conditions.

Your firm has just recruited some audit trainees. It is the practice of the firm to give orientation to the newly recruited so that they could be familiar with the firm’s operations, especially before the commencement of an audit busy season.

As an audit senior in the firm, you have been directed to facilitate the programme for the newly hired trainees. You were allocated a topic on the archiving and retrieval of audit documents for a current year audit.

Required:
Based on your experience over the years, discuss:
a. Audit working paper archiving (1 Mark)
b. The purposes of audit working papers archiving (6 Marks)
c. The types, contents, and importance of audit working paper files (8 Marks)
d. The owner of audit working paper files and the conditions under which access to them could be granted to a third party (5 Marks)

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  • 20 Marks

AA – Nov 2020 – L2 – Q5 – Audit Documentation

Review a workpaper, explain audit working paper ownership, and describe sampling risk and considerations for reducing sampling risk.

Below is a workpaper prepared and reviewed by members of an audit engagement team.

Client: [Name not provided]
Subject: Trade Payables
Period End: [Not provided]

Objective: To ensure trade payables is fairly stated

Work performed: Selected a sample of 5 trade payables balances as at 31 March and reconciled the supplier statements to the year-end trade payables ledger. Reconciling items were vouched to source documentation.

Results

Required:
a. Review the above workpaper and comment on the missing items. (8 Marks)
b. An accounts personnel at the client office requested that you give him your audit working papers. Explain the ownership, custody, and confidentiality of audit working papers. (3 Marks)
c. Explain sampling and sampling risk. (3 Marks)
d. In order to reduce sampling risk appropriately, ISA 530 requires the auditor to make certain considerations in designing a sample. Explain these considerations. (2 Marks)
e. Explain the advantages and disadvantages of statistical sampling. (4 Marks)

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  • 20 Marks

AA – Nov 2022 – L2 – Q2a – Audit Documentation Requirements

Overview of audit documentation requirements per ISA 230, including reasons and required contents.

The International Standards on Auditing (ISA) 230 deals with the auditor’s responsibility to prepare audit documentation for an audit of financial statements.

Required:
a. State FIVE reasons for preparing audit documentation. (5 Marks)
b. Highlight the requirements of ISA 230 on audit documentation. (3 Marks)
c. State FIVE contents each of current and permanent files. (10 Marks)
d. Explain who owns audit working papers and why. (2 Marks)

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  • 20 Marks

AA – May 2021 – L2 – Q5 – Audit Evidence

Explanation of sufficient and appropriate audit evidence, factors in deciding audit evidence amount, auditor actions on inadequate evidence, and audit documentation rationale.

JAK Professional Services is a member firm of James Candle International in Cayman Islands. The member firm’s practice review exercise has just been concluded. As part of the global firm, practice reviews are done yearly on selected engagement files where member firms review one another. Some of the issues included in the review notes raised on JAK Professional Services audit files are as follows:

i. Lack of sufficient and appropriate audit evidence regarding audit of cash and bank as well as inventory balances. This was partly due to the fact that no evidence existed in the file regarding physical cash and inventory count which were material;

ii. No proper documentation of confirmation replies received from banks, receivables, and solicitors;

iii. No cash flow working documentation to show how the figures on the cash flow statements in the financial statements were arrived at;

iv. Improper documentation of how expected credit loss on financial instruments in the financial statements were arrived at; and

v. Figures in the financial statements could not be traced to the respective working papers.

As an experienced auditor, some of the trainees were not impressed about the report and have approached you for clarification.

You are required to explain:

a. Meaning of ‘sufficient and appropriate audit evidence’ (5 Marks)
b. Factors to be considered when deciding amount of audit evidence needed (4 Marks)
c. What auditors should do in case of inadequate audit evidence (5 Marks)
d. Reasons for sufficient and appropriate audit documentation (6 Marks)

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  • 15 Marks

AA – May 2017 – L2 – SC – Q6 – Audit Documentation

Explanation of audit documentation purpose, and distinction between permanent and current audit files.

ISA 230 requires the Auditor to prepare documentation on a timely basis, sufficient to enable an experienced auditor, with no previous connection with the audit, to understand significant matters arising during the audit and the conclusions reached thereon.

You are required to:

  1. (a) Explain THREE reasons for preparing audit working papers. (3 Marks)
  2. (b) State FIVE other purposes of audit documentation. (5 Marks)
  3. (c) List FIVE items of information that might be included in the Permanent Audit File. (5 Marks)
  4. (d) Explain what differentiates the Permanent Audit File from the Current Audit File. (2 Marks)

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  • 15 Marks

AA – May 2023 – L2 – SC – Q6 – Audit Documentation

Types, importance, and determining conditions for audit working paper files.

At one of the seminars you attended on legal and regulatory frameworks of financial reporting, it was stated that one of the duties of the Financial Reporting Council of Nigeria (FRC) is to provide legal and regulatory frameworks for minimum practice guidelines for auditors in Nigeria. To do this, the FRC ensures that all activities of Registered Auditors, other Assurance Providers, and Audit Committee members are regulated to sustain best ethical practices and promote quality audit services.

It is part of the obligations of the Financial Reporting Council of Nigeria to conduct practice reviews of registered professionals. You learned that, for effective monitoring, the Audit Regulation mandates external auditors to create an audit file for each statutory audit carried out and to retain the working papers and other materials supporting the audit report conclusions for a minimum of seven years.

A classmate from university, now a banker, attended the seminar with you and has asked for further clarification on what is meant by “working paper” and why regulators are concerned with audit file reviews.

Required:

a. Identify the different types of audit working paper files. (5 Marks)

b. Outline the importance of audit working paper files. (5 Marks)

c. Explain briefly the conditions that determine the size of audit working papers. (5 Marks)

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  • 15 Marks

AA – Nov 2015 – L2 – Q6 – Audit Documentation

Discussing the retention of working papers, justification for retaining them, and types of information found in audit files.

Delta, Gamma, and Co. are the auditors to Hope Limited. The firm proposes to move their office to new premises and wishes to destroy old audit working papers beyond six years while others are to be converted into electronic copies by using scanners. Hope Limited, having decided to discontinue with Delta, Gamma & Co. as its auditors, has requested that the firm should hand over to their new auditors all the audit working papers of the previous years and the permanent audit file.

Required:
a. Advise Delta, Gamma & Co. on the above scenarios. (5 Marks)
b. Justify why it is important to maintain and keep audit working papers. (5 Marks)
c. State FIVE types of information you would expect to see in each of the following:
i. Permanent audit file
ii. Current working paper file (5 Marks)

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  • 20 Marks

AA – Nov 2016 – L2 – Q4 – Audit Documentation

This question covers the need for a letter of representation, its content, and steps to be taken when management refuses to sign the letter.

Polyet Nigeria Plc is into the manufacture of plastic materials. It has its factory in Apapa, Lagos, with distribution outlets spread across the country. A new Managing Director, Mr. KO has just been appointed. Shortly after the new Managing Director was appointed, your firm concluded the audit of the Company’s Financial Statements. A request was made from the newly engaged Managing Director for a letter of representation. He informs you in no uncertain terms that the company engaged you as the auditor to take responsibilities for your audit opinion, and that he is not ready to repeat in writing the information that the Chief Finance Officer, other accounting staff, and himself provided to you during the audit exercise. You tried to explain to him that it is standard practice to request a letter of representation from the Management, but he remained adamant.

Required:
a. Explain the need for the auditor to obtain a letter of representation from the management. (5 Marks)
b. Itemise TEN contents of a Letter of Representation. (10 Marks)
c. What steps should you take as the auditor if the Managing Director still persists in his refusal to sign the letter? (5 Marks)
(Total 20 Marks)

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  • 5 Marks

AA – Nov 2016 – L2 – Q2c – Audit Documentation

This question details the elements that must be included in an engagement letter issued to a new audit client, covering responsibilities, terms, and scope of the audit.

Discuss in detail the content of an engagement letter to be issued to a new client.

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  • 15 Marks

AA – May 2022 – L2 – SC – Q7 – Audit Documentation

Discuss factors for assessing materiality and principles for evaluating the impact of misstatements.

Materiality is a fundamental concept in both auditing and accounting. It reflects the fact that users of financial statements find it useful even if they are not 100% accurate.

a. What are the factors that an auditor will consider when assessing whether or not an item is material? (5 Marks)
b. State the principles an auditor will apply in the concept of materiality:
i. When planning and performing the audit. (5 Marks)
ii. When evaluating the effect of misstatements on the financial statements. (5 Marks)

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  • 20 Marks

AA – Nov 2019 – L2 – Q5 – Audit Documentation

Discuss the archiving of audit working papers, their purposes, types, contents, and ownership conditions.

Your firm has just recruited some audit trainees. It is the practice of the firm to give orientation to the newly recruited so that they could be familiar with the firm’s operations, especially before the commencement of an audit busy season.

As an audit senior in the firm, you have been directed to facilitate the programme for the newly hired trainees. You were allocated a topic on the archiving and retrieval of audit documents for a current year audit.

Required:
Based on your experience over the years, discuss:
a. Audit working paper archiving (1 Mark)
b. The purposes of audit working papers archiving (6 Marks)
c. The types, contents, and importance of audit working paper files (8 Marks)
d. The owner of audit working paper files and the conditions under which access to them could be granted to a third party (5 Marks)

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  • 20 Marks

AA – Nov 2020 – L2 – Q5 – Audit Documentation

Review a workpaper, explain audit working paper ownership, and describe sampling risk and considerations for reducing sampling risk.

Below is a workpaper prepared and reviewed by members of an audit engagement team.

Client: [Name not provided]
Subject: Trade Payables
Period End: [Not provided]

Objective: To ensure trade payables is fairly stated

Work performed: Selected a sample of 5 trade payables balances as at 31 March and reconciled the supplier statements to the year-end trade payables ledger. Reconciling items were vouched to source documentation.

Results

Required:
a. Review the above workpaper and comment on the missing items. (8 Marks)
b. An accounts personnel at the client office requested that you give him your audit working papers. Explain the ownership, custody, and confidentiality of audit working papers. (3 Marks)
c. Explain sampling and sampling risk. (3 Marks)
d. In order to reduce sampling risk appropriately, ISA 530 requires the auditor to make certain considerations in designing a sample. Explain these considerations. (2 Marks)
e. Explain the advantages and disadvantages of statistical sampling. (4 Marks)

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