New guidance on adit and attest documentation

CPA Journal, The, Nov 2002 by Young, George R

Statement on Auditing Standards (SAS) 96 expands guidance for audit documentation. In particular, the new SAS identifies six factors that the auditor should consider when determining the quantity, type, and content of audit documentation. These factors, plus the examples of significant findings or issues that could affect the extent of audit documentation, make the new SAS particularly helpful. Statement on Standards for Attestation Engagements (SSAE) 11 provides broader, yet similar, guidance for documentation of attestation engagements. The tandem issuance of SAS 96 and SSAE 11 not only conforms audit and attestation standards, it further facilitates the broadening of services.

Background

It has been almost 20 years since the issuance of SAS 41, Working Papers, which specified the function, nature, content, and ownership of working papers. SAS 96, Audit Documentation (AICPA, Professional Standards, vol. 1, AU section 339), includes new guidance for auditors, including a more substantive list of factors that should be considered when auditors determine the nature and extent of audit documentation. Also recognized is the broader means of documenting audit evidence by using the term audit documentation, rather than the previously used term, working papers.

SSAE 11, Attest Documentation, represents an amendment to SSAE 10 (AICPA Professional Standards, vol. 1, AT section 101-701). By using an approach that mirrors the expansion of guidance provided to auditors in SAS 96, SSAE 11 expands documentation guidance for practitioners engaged in attestation engagements. SAS 96 is a specific application of the broad provisions of SSAE 11, and the two standards are virtually identical except that SSAE 11 requires documentation of an entity's process for developing its prospective financial statements when determining the scope of the examination. Because SAS 96 and SSAE 11 are so similar and because SAS 96 provides more specific guidance, only the provisions of SAS 96 are discussed in this article.

The new SAS does not change the specific documentation requirements contained in other standards, such as in SAS 1, Codification of Auditing Standards and Procedures, regarding the auditor's documentation of the understanding with the client, and in SAS 85, Management Representations, related to the proscription to obtain certain written representations from management. It affects previously issued pronouncements in the areas of audit risk and materiality, analytical procedures, and going concern.

This newly issued SAS is effective for financial statement audits covering periods that begin on or after May 15, 2002. SSAE 11 is effective for attest engagements that address either a matter or an assertion that exists at or is for a period ending on or after May 15, 2002. Early application of SAS 96 and SSAE 11 is permitted.

Purposes of Audit Documentation

The new SAS reiterates that audit documentation serves to provide principal support for the auditor's report and to demonstrate that the fieldwork standards of planning the audit, supervising assistants, obtaining sufficient understanding of client internal controls, and accumulating sufficient competent evidence were met. Audit documentation also assists auditors in conducting and supervising the audit.

Audit documentation helps the auditor perform the audit by providing an orgy nized, coherent map of the nature, timing, and extent of tests performed and conclusions reached, so that a sufficient evaluation of the adequacy of the examination can be made. According to SAS 96, audit documentation is the principal record of the procedures applied, the evidence obtained, and the auditor's conclusions.

Professional standards require CPA firms to establish policies and procedures to ensure that they meet professional standards, including generally accepted auditing standards (GAAS) and regulatory requirements [see Statement on Quality Control Standards (SQCS) 2, System of Quality Control for a CPA Firm's Accounting and Auditing Practice (AICPA, Professional Standards, vol. 2, QC section 20)]. SAS 96 indicates that the review of audit documentation and discussions that take place between reviewers and engage went team members are among procedures a CPA firm performs to determine whether it has complied with the quality control policies and procedures it has established.

Factors the Auditor Should Consider

Whereas SAS 41 stated that the quantity, type, and content of working papers vary according to circumstances, SAS 96 explicitly recognizes the role of professional judgment in determining the quantity, type, and content of audit documentation. The auditor exercises professional judgment by considering several factors when determining the nature and extent of audit documentation for an audit area or procedure:

* The risk that an assertion, account, or class of transactions is materially misstated.

* The extent to which auditor judgment must be used to perform the work and evaluate the results.

* The nature of the auditing procedure applied.