Auditors often exhibit a keen focus on meticulously crafted Excel documents, thorough documentation, and impeccable organisational skills. For seasoned professionals in the field, these attributes become instinctive.
It may be surprising to learn that most auditors weren’t inherently inclined towards such precision or the creation of intricate working papers. Rather, they developed these skills through rigorous training by their mentors early in their careers. There is a compelling reason why this meticulous training was emphasised.
Auditors must work within a highly regulated framework. They cannot act at their own discretion. Employing professional judgment does not mean disregarding these rules. Auditors are obligated to adhere to all pertinent International Standards for Auditing (ISAs). Additionally, they must comply with the International Standards on Quality Control (ISQC). Ensuring quality in the audit file has always been essential.
In 2022, the International Auditing and Assurance Standards Board (IAASB) replaced the sole existing ISQC with two new “International Standards on Quality Management,” ISQM1 and ISQM2, as part of its quality management initiative.
This was not all. Auditors are not left off the hook so easily. Many ISAs indirectly deal with quality, and there are a few—mainly ISA 230 Audit Documentation, ISA 500 Audit Evidence, and ISA 220 Quality Control for an Audit of Financial Statements—that directly and explicitly require high standards of documentation in the auditor’s work.
Just as healthcare professionals are expected to maintain exceptional documentation to ensure patient care quality, auditors must uphold exacting standards in their working papers to guarantee the integrity and thoroughness of their audits.
ISA 230 mandates that audit documentation should be prepared in such a way that an experienced auditor, with no previous connection to the audit, can understand the nature, timing, and extent of the audit procedures performed. This requirement ensures that the audit process is transparent and accessible, allowing for reviews and inspections that uphold the quality and reliability of the audit work.
Furthermore, ISA 500 emphasizes the need for sufficient and appropriate audit evidence, which often necessitates detailed and well-organized working papers. These documents serve as the backbone of the auditor’s conclusions and opinions, providing a clear trail of the procedures and evidence gathered during the audit.
ISA 220, on the other hand, focuses on the overall quality control for audits of financial statements. It requires audit firms to establish policies and procedures designed to ensure that audits are conducted in accordance with professional standards and regulatory requirements. This includes the proper supervision and review of audit work, which is heavily reliant on the quality of the working papers prepared by auditors.
Maintaining neatness and thorough documentation begins in the planning phase, not just at the working papers stage. Clients rarely overlook planning since they typically do not have access to or see the planning documents. Conversely, clients may occasionally view the auditors’ working papers during fieldwork. These working papers are crucial for auditors, as they showcase the quality of the audit engagement performed.
ISA 230 specifically states that the audit documentation should be prepared in such a way that an experienced auditor with no previous connection to the audit, and without anyone giving explanations, can:
- Determine the nature, timing, and extent of the audit procedures.
- Understand the results of the audit procedures and the audit evidence obtained.
- Fully understand if there were any significant matters which arose from the audit, the conclusions reached, and the basis for these conclusions.
An experienced auditor is not likely to describe a test as “satisfactory,” as this term can be vague and open to interpretation regarding the reasons behind the assessment. Generally, such documentation issues are addressed early in an auditor’s career.
At Borg Galea, we require that the audit conclusion be well-documented to connect the working papers with the overall audit objectives. Essentially, we need to determine if the test conducted was adequate in addressing the identified risks or if it revealed any issues suggesting otherwise. We also need to document whether any specific judgments were applied during the testing or in reaching the conclusion. Summarising the findings is essential and compulsory.
If there are any misstatements, they must be assessed, concluded upon based on materiality, and possibly linked to any control weaknesses. Our auditors should also record management’s response, indicating whether they agree or disagree. All this information should then be considered to help explain to the user why the auditor reached their conclusion.
In conclusion, auditors maintain great documentation because it is a fundamental requirement. The standards outlined emphasise that high-quality documentation is critical not only for compliance purposes but also to ensure transparency, accountability, and audit quality. By adhering to these rigorous documentation standards, auditors uphold the integrity of the audit process and contribute to the reliability of financial reporting.
Moreover, thorough documentation serves as a safeguard against potential disputes or misunderstandings by providing a clear and detailed record of the audit procedures and outcomes. It enables future auditors to understand the rationale behind specific judgments and decisions, ensuring continuity and consistency in audit practices.
Additionally, comprehensive documentation supports the auditor’s findings and conclusions during external reviews or inspections by regulatory bodies, thereby reinforcing the credibility and trustworthiness of the audit itself. This meticulous approach ultimately fosters confidence among stakeholders, including investors, regulators, and the public, that the audited financial statements are accurate and free from material misstatements.
In essence, the diligence in documentation not only reflects the auditor’s commitment to excellence but also plays a pivotal role in safeguarding the integrity of the financial reporting ecosystem.
