Audit documentation - Quality management for review of worki...

Learning Outcomes

After studying this article, you will be able to explain the purpose of audit documentation and describe quality management steps for the review of working papers. You will understand the requirements for maintaining, supervising, and reviewing audit files, recognise procedures for effective file review, and identify the responsibilities of auditors at various levels on the audit engagement.

ACCA Foundations in Audit (FAU) Syllabus

For ACCA Foundations in Audit (FAU), you are required to understand the standards and practices for audit documentation and the role of quality management in reviewing working papers. In particular, this article covers:

• The reasons for maintaining audit documentation
• The purpose and contents of current and permanent files
• Quality management procedures for reviewing audit working papers
• The role of engagement partners and supervisors in review and direction
• Practical procedures for effective review, supervision, and documentation standards

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. What are two main purposes of retaining audit working papers?
2. Who is ultimately responsible for quality management and review of the audit engagement?
3. Name two typical review procedures performed on audit working papers.
4. Briefly explain why clear documentation is important for audit quality.
5. What is the difference between a 'hot' review and a 'cold' review?

Introduction

Audit documentation is the key record of work performed and evidence obtained during an audit engagement. Quality management over the review of working papers is required to ensure the audit meets professional and regulatory standards, reduces audit risk, and supports the audit opinion.

Responsibility for quality rests with the engagement partner, but review procedures involve all senior members of the audit team. Auditors must keep precise records, follow set review processes, and document conclusions in a way that any qualified auditor could understand the work performed without further explanation.

Key Term: audit documentation
Audit documentation is the record of audit procedures performed, evidence obtained, and conclusions reached by the auditor.

Key Term: working papers
Working papers are documents prepared by, or on behalf of, the auditor, recording work performed and evidence supporting the audit opinion.

Key Term: quality management
Quality management refers to the systems and procedures firms use to ensure audits are planned, performed, supervised, and reviewed according to professional standards.

THE PURPOSE OF AUDIT DOCUMENTATION

Audit documentation serves as both evidence of work done and a basis for review, supervision, and future reference.

Main purposes include:

• Providing evidence that the audit was carried out in accordance with professional standards
• Aiding planning, direction, and supervision of audit work
• Enabling engagement partner and manager reviews
• Supporting accountability and external inspection

Well-prepared documentation demonstrates that sufficient, appropriate evidence was obtained and helps defend the auditor in case of legal or regulatory challenges.

CONTENTS OF AUDIT WORKING PAPERS

Audit working papers typically include:

• A summary of the audit plan and strategy
• Details of procedures performed, evidence found, and conclusions drawn
• Schedules, lead schedules, and supporting calculations
• Checklists, confirmations, and correspondence
• Evidence of supervision and review at each stage

Two types of files are common:

• Permanent file: Contains information relevant over multiple years (e.g., key contracts, statutory documents, organisational charts).
• Current file: Contains audit work and evidence relating to the current year only.

Worked Example 1.1

A new assistant has completed audit evidence testing on receivables. The working paper lacks a conclusion and is unsigned. How should the audit supervisor respond during review?

Answer:

• The supervisor should note the absence of a conclusion and signature, return the working paper for completion, and instruct the assistant to finalise it before review.
• This ensures the working paper is clear on the work done, by whom, and allows review to confirm the evidence supports the conclusions.

QUALITY MANAGEMENT PROCEDURES FOR REVIEW

Rigorous review is a requirement under both ISAs and firm policies. The engagement partner is ultimately responsible for quality, but review procedures occur at multiple stages and levels:

• Direction and supervision: Clear instructions are given to team members.
• Ongoing review: Each working paper is reviewed by a senior auditor, with evidence of review (e.g., initials and date).
• Final review: Engagement partner and manager conduct overall review to ensure sufficient evidence and proper conclusions.
• Consultation: Difficult or contentious matters are discussed and documented.
• Engagement quality review: In some cases (especially for high-risk or listed clients), an independent, senior reviewer evaluates significant judgements and conclusions before the auditor’s report is signed.

Supervision and review help detect errors, ensure consistent quality, and confirm that audit objectives are met.

Key Term: engagement quality review
An engagement quality review is an independent assessment of the significant judgements made and conclusions reached by the audit team, often required for listed clients.

PRACTICAL REVIEW PROCEDURES

Review of working papers involves specific checks, including:

• Confirming procedures were planned and performed as required
• Checking that evidence supports the conclusions on each area
• Verifying all required sections of the audit file are present (planning, performance, completion)
• Ensuring errors or exceptions are fully explained and resolved
• Confirming that sign-offs by preparers and reviewers are present and dated
• Evaluating whether the documentation enables an experienced auditor to understand the work performed and rationale for key decisions

A review is evidenced by the initials and date of the reviewer on each working paper section.

There are different types of reviews:

• Hot review: Performed before the auditor’s report is issued, to confirm the audit file supports the intended opinion.
• Cold review: Performed after report signature, often as part of a firm's internal quality control or peer review processes.

Worked Example 1.2

A manager finds in the audit file several unsigned working papers with missing explanations for exceptions noted during payroll testing. What quality issue does this highlight, and what action should be taken?

Answer:

• This situation indicates inadequate supervision and incomplete documentation, which threaten audit quality.
• The manager should return the papers for completion, remind the team of documentation standards, and review supervision arrangements to ensure future compliance.

RESPONSIBILITIES IN THE REVIEW PROCESS

• Engagement partner: Takes final responsibility for audit quality, ensuring reviews are completed, and sufficient, appropriate evidence is obtained.
• Manager and supervisors: Review work within their areas, provide feedback, and ensure audit objectives are met.
• Team members: Prepare clear, self-contained working papers, resolve queries, and sign off work.

Quality management procedures also require:

• Maintenance of confidentiality and safe custody of audit files
• Compliance with firm policies and regulatory requirements
• Retention of working papers for the period required by law and professional standards (usually at least six years)

Exam Warning

A frequent exam error is assuming that a reviewer only checks that procedures are ticked off. In reality, review must confirm that evidence supports each conclusion and that significant judgements are logical and well-documented. Surface checking is not sufficient for quality management.

COMMON REVIEW DEFICIENCIES AND MITIGATION

Common review issues include:

• Lack of evidence for review (missing signatures/dates)
• Vague or missing conclusions on audit tests
• Unresolved review points
• Inadequate explanation of exceptions or unusual findings

To prevent these, firms often provide checklists, standard formats, and regular team training in documentation and review.

Revision Tip

Before submitting a working paper for review, ask yourself: "Would an experienced auditor, with no prior involvement, understand what I did, why I did it, and what I concluded?"

Summary

Proper review and supervision of audit working papers underpin audit quality and support the reliability of the audit opinion. Ongoing review at each stage ensures issues are addressed timely and reduces the risk of material errors or insufficient evidence. Clear documentation, with signed-off reviews, is essential for demonstrating compliance with professional standards and for future reference or investigation.

Key Point Checklist

This article has covered the following key knowledge points:

• The main purposes of audit documentation and working papers
• The required contents of current and permanent files
• Key responsibilities for quality management and audit review at all levels
• Typical review procedures and types of review (hot and cold)
• The importance of supervision, review evidence, and clear conclusions in working papers
• Common documentation review deficiencies and how to address them

Key Terms and Concepts

• audit documentation
• working papers
• quality management
• engagement quality review