It’s the best slogan invented by estate agents which they say are the three most important things with property which are location, location, location.
The same could be said for the most common audit file weakness. The three most important things to have on audit file are Documentation, Documentation, Documentation.
Documentation is key.
The audit standard on this topic is Audit Documentation ISA (Ireland) 230.
The most common audit file weaknesses often involve a lack of documentation evidencing the audit work that has been performed.
Too often it is unclear:
- which audit assertion is being tested;
- how an assertion has been tested;
- what the full results of the test are; and/or
- how outstanding points/queries have been cleared.
In many cases audit teams are able to provide additional verbal explanations or evidence but the fact that this is necessary is a good indication that the quality and extent of documentation needs improvement.
Every audit assertion being tested should be supported by a clear work paper record in the form of a schedule detailing:
- the objective;
- the method (including sample size and selection methods);
- the results; and
- the overall conclusion and sign off by the audit engagement partner.
Just a quick reminder that the 12 main audit assertions are in ISA (Ireland) 315.A190 and are divided into two main classes:
Income Statement or Profit & Loss Account
(i) Occurrence – the transactions and events that have been recorded or disclosed have actually occurred, and such transactions and events pertain to the entity.
(ii) Completeness – all transactions and events that should have been recorded have been recorded, and all related disclosures that should have been included in the financial statements have been included (probably the most difficult assertion to prove)
(iii) Accuracy – amounts and other data relating to recorded transactions and events have been recorded appropriately, and related disclosures have been appropriately measured and described.
(iv) Cut–off – transactions and events have been recorded in the correct accounting period.
(v) Classification – transactions and events have been recorded in the proper accounts (either P&L versus Balance Sheet).
(vi) Presentation – transactions and events are appropriately aggregated or disaggregated and clearly described, and related disclosures are relevant and understandable in the context of the requirements of the applicable financial reporting framework.
Balance Sheet and Related Disclosures at the Period End
(i) Existence – assets, liabilities and equity interests actually exist.
(ii) Rights and obligations – the entity holds or controls the rights to assets, and liabilities are correctly the obligations of the entity.
(iii) Completeness – all assets, liabilities and equity interests that should have been recorded have been recorded, and all related disclosures that should have been included in the financial statements have actually been included.
(iv) Accuracy, valuation and allocation – assets, liabilities and equity interests have been included in the financial statements measured at appropriate amounts and any resulting valuation or allocation adjustments have been appropriately recorded, and related disclosures have been appropriately measured and described.
(v) Classification – assets, liabilities and equity interests have been recorded in the correct accounts.
(vi) Presentation – assets, liabilities and equity interests are appropriately aggregated or disaggregated and clearly described, and related disclosures are relevant and understandable in the context of the requirements of the applicable financial reporting framework.
For tailored training sessions explaining more about the ISAs, please send a mail to john@jmcc.ie.
For more on engagement and representation letter templates and a variety of CPD webinars on money laundering and other accounting/audit related topics, please go to our website for:
- Our latest CPD Webinar on The Main Changes in Irish GAAP (recorded July 2024)
- Anti-Money Laundering Policies Controls and Procedures Manual (March 2022) — View the table of contents
- AML Webinar (December 2023) available here, which accompanies the AML Manual. It explains the latest legal AML reporting position for accountancy firms and includes a quiz. Upon completion you receive a CPD certificate for attendance in your inbox.
- Letters of engagement and similar templates—Please visit our website here where immediate downloads are available in Word format. A bulk discount is available for orders of five or more items bought together.
ISQM TOOLKIT, or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard. We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. Please contact John McCarthy FCA by email at john@jmcc.ie.
