Question

What are the risks of inadequate audit documentation?

Answer 1

All audits require documentation, but that doesn’t mean firms are documenting audits sufficiently. In fact, common audit deficiencies identified in peer review often involve lack of adequate documentation. Of course this leaves clients vulnerable and auditors at risk of disciplinary action.

As a result, firms need guidance about common audit deficiencies related to documentation. A new whitepaper called “ProSystem fx Knowledge Coach’s Antidote to Common Audit Documentation Deficiencies,” outlines eight deficiencies, related sections of AICPA AU-C Section 230, and Knowledge Coach titles that help the auditor address these deficiencies. The whitepaper also includes numbers best practices and tips for preventing these common audit deficiencies.

Top 8 Common Audit Documentation Deficiencies

So which documentation problems are most common? Here are the top eight, covered in the whitepaper:

• Fraud. Failure to appropriately address fraud considerations. This includes lack of adequate documentation procedures applied regarding risks of material misstatement due to fraud.
• Risk assessment procedures. Lack of documentation around risk assessment procedures. This includes failure to properly and adequately document planning procedures relating to risk assessment. It also includes the linkage of risks to the procedures performed.
• Audit sampling. Failure to adequately document audit sampling methodology.
• Communication with those charged with governance. Failure to communicate or document required communications.
• Audit strategy and audit plan. Failure to document the overall audit strategy, the audit plan, or any significant changes made during the audit engagement.
• Analytical procedures. Lack of documentation or expectations for analytical procedures and related actions when substantive analytical procedures have been performed.
• Materiality. Lack of documentation of materiality considerations including those relating to uncorrected misstatements.
• Accounting estimates. Lack of documentation of the basis for the auditor’s conclusions about the reasonableness of accounting estimates that give rise to significant risks. This includes indicators of possible management bias.

ProSystem fx Knowledge Coach includes several resources designed to help auditors with audit documentation. The new whitepaper helps auditors avoid these deficiencies by identifying the primary practice aids that address these requirements.