CPA Exam AUD: Audit Documentation and Workpapers

Audit Documentation and Workpapers: CPA Exam Essentials

Audit documentation, often referred to as workpapers, is the record of audit procedures performed, relevant evidence obtained, and conclusions reached. AU-C Section 230 (Audit Documentation) establishes the requirements for preparing and maintaining audit documentation. Documentation serves as the principal support for the auditor's report, evidence that the audit was planned and performed in accordance with GAAS, and a record that facilitates planning, supervision, and review.

Purpose of Audit Documentation

Documentation serves several critical purposes. It provides a sufficient and appropriate record of the basis for the auditor's report. It provides evidence that the audit was planned and performed in accordance with GAAS and applicable legal and regulatory requirements. It assists engagement team members responsible for supervision in directing, supervising, and reviewing the audit work. It enables the conduct of quality control reviews and inspections. It also assists the engagement team in being accountable for their work.

What Must Be Documented

The auditor must prepare documentation that is sufficient to enable an experienced auditor, having no previous connection with the audit, to understand the nature, timing, and extent of audit procedures performed, the results of those procedures and the audit evidence obtained, significant matters arising during the audit and the conclusions reached thereon, and circumstances that caused the auditor to depart from a basic principle or essential procedure and the auditor's justification for the departure. This is sometimes referred to as the "experienced auditor" standard.

Specific items that must be documented include the overall audit strategy and audit plan, risk assessments at both the financial statement level and the assertion level, significant findings or issues (including how they were addressed), the basis for the auditor's conclusions on significant matters, written communications with management and those charged with governance, and if applicable, the reasons for any departures from GAAS requirements.

Form and Content

Audit documentation may be in paper or electronic form. The form, content, and extent of documentation depend on the size and complexity of the entity, the nature of the audit procedures being performed, the identified risks of material misstatement, the significance of the audit evidence obtained, the nature and extent of exceptions identified, and the need to document a conclusion or the basis for a conclusion not readily determinable from the documentation of the work performed. Oral explanations alone do not represent adequate support for the work performed or conclusions reached, though they may supplement written documentation.

Documentation of Significant Matters

Significant matters requiring documentation include matters that give rise to significant risks, results of audit procedures indicating a need for significant revision of the risk assessment, matters that cause significant difficulty in applying necessary audit procedures, and findings that could result in a modification to the audit opinion. The auditor should also document the engagement team's discussions regarding the susceptibility of the entity's financial statements to material misstatement due to fraud (the brainstorming session).

Documentation Completion Date

Under AICPA standards, the auditor should assemble the final audit file on a timely basis, generally no later than 60 days after the report release date (the documentation completion date). After the documentation completion date, the auditor must not delete or discard existing documentation. If modifications are made after this date, the auditor must document the specific reasons for making them, when and by whom they were made, and the effect on previous conclusions. For PCAOB audits of public companies, the documentation completion date is 45 days after the report release date.

Retention Requirements

Under AICPA standards, audit documentation should be retained for a period sufficient to meet the needs of the firm and satisfy applicable legal, regulatory, or professional requirements. A common minimum retention period is five years from the report release date. Under PCAOB standards, audit documentation for public company audits must be retained for at least seven years from the report release date. Failure to retain documentation can result in disciplinary action.

Ownership and Confidentiality

Audit documentation is the property of the auditor, not the client. The auditor must maintain the confidentiality of client information contained in the documentation. Access to documentation by third parties generally requires client consent, a court order, or regulatory requirements. However, the auditor must make workpapers available for peer review and, for PCAOB-registered firms, PCAOB inspections.

Common Workpaper Types

Common types of workpapers include trial balances and lead schedules, audit programs, confirmations and confirmation summaries, analytical procedure documentation, memoranda and correspondence, adjusting and reclassifying journal entries, management representation letters, engagement letters, and checklists. Each workpaper should typically include the client name, the period covered, the subject of the workpaper, the preparer's initials and date, the reviewer's initials and date, an index or reference number, and the source of information.

Exam Tips for Audit Documentation

• Documentation must enable an experienced auditor with no connection to the engagement to understand the work performed.
• Under AICPA standards, the documentation completion date is 60 days after report release; under PCAOB, it is 45 days.
• After the completion date, existing documentation cannot be deleted, and any additions must document who, when, and why.
• Audit documentation belongs to the auditor, not the client.
• Retention is at least 5 years (AICPA) or 7 years (PCAOB) from the report release date.