Procurement Audit Document and Other Procurement Records
International Standards on Auditing (ISA) documentation 230 states that the auditor should document matters which are important in providing audit evidence to support the auditor’s opinion and evidence that the audit was carried out in accordance with ISAs. “Documentation” means the materials (working papers) prepared by and for, or obtained and retained by the auditor in connection with the performance of the audit. The The Public Company Accounting Oversight Board (PCAOB) auditing standard No. 3 describes ‘audit documentation’ as ‘the written record of the basis for the auditor’s conclusions that provides the support for the auditor’s representations, whether those representations are contained in the auditor’s report or otherwise’.
Reasons for Preparing Sufficient and Appropriate Audit
Documentation Preparing sufficient and appropriate audit documentation on a timely basis helps to:
- Enhance the quality of the audit, and
- Facilitate the effective review and evaluation of the audit evidence obtained and conclusions reached, before the audit report is finalized.
Documentation prepared at the time the work is performed is likely to be more accurate than documentation prepared later.
Other purposes of audit documentation include the following.
- Assisting the audit team to plan and perform the audit.
- Assisting supervisors in directing and supervising audit work.
- Ensuring members of the audit team are accountable for their work.
- Keeping a record of matters of continuing significance to future audits.
- Enabling an experienced auditor, with no previous connection with that audit, to conduct quality control reviews or other inspections i.e. by understanding the work that has been performed and the conclusions that have been reached.
Working papers may be in the form of data stored on paper, film, electronic media or other media. Working papers:
- Assist in the planning and performance of the audit
- Assist in the supervision and review of audit work
- Enable the audit team to be accountable for its work
- Retain a record of matters of continuing significance to future audits;
and - Enable quality control reviews to be performed
Duties of Auditors on Working Papers
It is the duty of the auditor to:
(a) Prepare working papers which are sufficiently complete and detailed to provide an overall understanding of the audit;
(b) Record in the working papers information on planning the audit work, the nature, timing and extent of the audit procedures performed, the results thereof, and the conclusions drawn from the audit evidence obtained;
(c) Record auditor’s reasoning on all significant matters which require the
exercise of judgment, together with the auditor’s conclusion thereon;
(d) Document areas involving difficult questions of principle or judgment; and
(e) Record the relevant facts known to the auditor at the time the conclusions were reached on matters of judgment or principles.
Factors Affecting the Form and Content of Working Papers:
- Nature of the engagement;
- Form of the auditor’s report;
- Nature and complexity of the business;
- Nature and condition of the entity’s procurement and internal control systems;
- Needs in the particular circumstances for direction, supervision and review of work performed by assistants;
- Specific audit methodology and technology used in the course of the audit;
- Use of standardized working papers, for example, checklists, specimen letters, standard organization of working papers;
- Need to facilitate the delegation of work while providing a means to control its quality; and
- Schedules, analyses and other documentation prepared by the entity and the need to be satisfied that those materials have been properly prepared.
Features/Qualities of a Good Working Paper
A good working paper should meet the requirements of ISA 230 by displaying the following characteristics:
- Standard form – A working paper should be prepared in a standard form. The subject matter should be arranged under various heading and subheadings.
- Proper layout –Working papers should be in proper design and layout. This will bring uniformity into the maintenance of working papers. Where there is necessary reference to another working paper, the full reference of that other working paper must be given. A statement that details of testing can be found on ‘another working paper’ is insufficient.
- Proper organisation and arrangement – the working papers should be properly organized and arranged. In other words, the working papers should be so organized and arranged that the auditor will be able to locate any particular matter easily. The working paper should be clearly referenced so that it can be filed appropriately and found easily when required at a later date. It should be signed by the person who prepares it so that queries can be directed to the appropriate person. It should be signed and dated by any person who reviews it, in order to meet the quality control requirements of the review.
- Completeness – the audit working papers should be complete in all respects. They should contain detailed information on all essential facts or points. It should state the full extent of the test (i.e. how many items were tested and how this number was determined). This will enable the preparer, and any subsequent reviewers, to determine the sufficiency of the audit evidence provided by the working paper. It should fully state the year/period end (e.g. 31 Dec 2019), so that the working paper is not confused with documentation belonging to a different year/period. The conclusions reached should be consistent with the results of the test and should be able to withstand independent scrutiny.
- Clarity and Accuracy – the working papers should be quite clear, self –explanatory and accurate. It should state a clear audit objective, usually in termsof an audit assertion (for example, ‘to ensure the completeness of trade payables’). The working paper should clearly and objectively state the results of the test, without bias, and based on the facts documented.
- Good quality paper – paper of good quality should be used for working papers as they are subject to frequent handling further the paper used should be of uniform and convenient size so that they can be easily filed.
- Space for margins – there should be enough space for margin after each note for noting down the auditor’s remarks and decisions.
Types of Documentation/Working Papers
i. Permanent file (information of continuing importance)
- Engagement letters
- Legal documents such as prospectuses, leases, sales agreement
- Details of the history of the client’s business
- Previous years’ signed accounts, analytical review and management letters
- Procurement systems notes, previous years’ control questionnaires
ii. Current file (information of relevance to current year’s audit)
- Procurement records
- Accounts checklists
- A summary of unadjusted errors
- Review notes
- Audit planning memorandum
- Time budgets and summaries
- Letter of representation
- Management letter
- Notes of board minutes
- Communications with third parties
- A lead schedule including details of the figures to be included in the accounts
- Problems encountered and conclusions drawn
- Audit programmes
- Analytical review
- Details of substantive tests and tests of control
Standardized Working Papers
This refers to a predetermined format of presenting and documenting audit findings formulated by individual audit firms e.g. check lists and specimen
letters which are filled with standard wording and gaps left to fill in the relevant details of the client.
Advantages of standardized Working Papers
- This improves the efficiency with which working papers are prepared because they will be used for many clients
- They act on guidelines for instructions to audit staff and facilitate delegation of work.
- They provide a means to control the quality of audit work by ensuring that minimum quality standards are maintained.
- Ensures that all relevant issues in the audit are addressed.
Disadvantages
- It is not appropriate to follow mechanically, a standardized approach to the conduct and documentation of audit work as the auditor in some cases will need to exercise his own judgment.
- The initiative of auditor staff may be restricted because the need to exercise judgment in preparing working papers is eliminated.
- The client staff may become familiar with the method and perpetuate fraud in areas not covered by the standard working papers.
- The audit work becomes very mechanical with use of standardized working papers.
Custody and Retention
ISA 230 states: “The auditor should adopt appropriate procedures for maintaining the confidentiality and safe custody of the working papers and for retaining them for a period sufficient to meet the needs of the practice and in accordance with legal and professional requirements of record retention.” By contrast, the proposed International Standard on Quality Control, ISQC 1, addresses the issue of document retention in the context of the firm’s system of quality control. The high-level guidance in ISQC 1 states: “The firm retains this documentation for a period of time sufficient to permit those performing monitoring procedures to evaluate the firm’s compliance with its system of quality control, or for a longer period if required by law or regulation.”
The firms therefore should establish policies and procedures designed to maintain the confidentiality, safe custody, integrity, accessibility and irretrievability of documentation, for example:
- Passwords to restrict access to electronic documentation to authorized users
- Back-up routines
- Confidential storage of hard copy documentation.
Local laws are likely to specify retention periods. These are unlikely to be shorter than five years. In the PPADA (2015) the procurement records should be kept for 6 years.