Required:
(a) What is the minimum standard that the audit documentation must meet?
(b) How would you treat the corrections made to the audit assistant’s recommendations and the additional work on accounts receivable confirmations in the working papers? Explain. Refer to both ASA 505 and ASA 230 in your answer.
(a) ASA 230 (Audit Documentation) requires that the auditor prepares documentation of the audit on a timely basis that provides a sufficient appropriate record of the basis for the auditor’s report and evidence that the audit was planned and performed in accordance with ASAs and applicable legal and regulatory requirements.
The audit documentation of audit procedures must record the (a) identifying characteristics of the specific items or matters tested (b) who performed the audit work and the date such work was completed, and (c) who reviewed the audit work performed and the date and extent of such review (see ASA 230.9)
Essentially, the documentation should allow another experienced auditor to understand the work done and the results obtained and any significant matters that arose during the audit. The conclusions reached should also be understandable given the audit work documented.
(b) The audit assistant has documented that there were no replies to certain accounts receivable positive confirmation letters. Jennifer’s review has shown that the decision to take no further action after non-reply from customers is not appropriate. A response to a positive confirmation request is necessary to obtain sufficient appropriate evidence (see ASA 505.13 External Confirmation)
According to ASA 505.12, the auditor shall perform alternative audit procedures to obtain relevant and reliable audit evidence for each of non-responses. Jennifer should note that further audit work is required and the specific audit work to be done. Examples of alternative audit procedures the auditor can perform are: a) examining specific subsequent cash receipts; b) shipping documents and c) sales near the period end for the non-response customers (see ASA 505.A18). Specific consideration should be given to the implication of the non-responses to audit risk for accounts receivable. These conclusions would also be documented (see ASA 230.8-12).