Audit Documentation - Proposed Statement on Auditing Standards and Statement on Standards for Attestation Engagements
Comments from the Association of Chartered Certified
Accountants
August 2001
General Comments
1 The Association of Chartered Certified Accountants (ACCA) is pleased to have the opportunity to comment on the Proposed Statement on Auditing Standards and Statement on Standards for Attestation Engagements - Audit Documentation (the exposure draft) issued for comment by the Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA).2 We applaud the decision of the AICPA ASB to provide, as part of the exposure draft, a comprehensive tabulation and summary of the proposed changes. This, undoubtedly, has greatly assisted those seeking to comment on the proposals. However, there is no overall justification for the proposals other than to recognise the ‘changes in the auditing environment in recent years’.
3 In preparing and updating its strategic plan, Horizons for the Auditing Standards Board: Strategic Initiatives Toward the Twenty-First Century, ASB listed the many recommendations to improve auditing which had been addressed to the profession during the years since SAS 41 was last significantly changed. ASB’s strategic initiatives and related action plans have been developed in response to the recommendations and identified trends.
4 It is apparent that the exposure draft has been heavily influenced by recommendations of the Panel on Audit Effectiveness (the Panel). Many of the Panel’s recommendations suggest the need to critically examine existing auditing standards, with the objective of revising or replacing some or all of them with more specific and definitive guidance containing imperatives to guide auditors in formulating their judgements and carrying out their work. In approximately 15% of the key areas examined by Panel reviewers, the reviewers did not agree that the documentation of the substantive tests and their results was appropriate. The Panel reviewers sought for working papers which included sufficient information to enable someone else to replicate the original work and understand the nature of the evidence examined.
5 A further major change in the auditing environment in recent years has been the accelerating pace of movement towards the internationalisation of auditing standards. The International Organization of Securities Commissions is considering whether international auditing standards promulgated by the International Federation of Accountants’ International Auditing Practices Committee (IAPC) might serve as an appropriate set of standards for auditors to use when auditing financial statements used in offerings involving cross-border financings. The European Union is developing its strategy to ensure that International Standards on Auditing (ISAs) are adopted by all member states.
6 These two major influences could give rise to tension as ISAs are currently perceived as being less specific than US auditing standards and therefore evoke concerns about preserving audit quality.
7 The exposure draft in several instances goes beyond the requirements of existing ISAs. While we would not seek to use this as the sole argument against change, it calls for consideration of the issues raised for those instances where this is the case. Conversely, some possibilities for harmonisation with ISAs have not been approached by the exposure draft. Our comments on these specific matters are addressed within the next section of this response.
Specific Comments
8 We support the change of title from 'Working Papers' towards that of the equivalent international pronouncement. However, given that the title of ISA 230 is 'Documentation', we suggest that it would be more appropriate to rename SAS 41 without referring to the word 'audit'.9 No specific documentation requirement is proposed for the auditor’s consideration of independence. It is possible that this is to be addressed in a future or amended SAS, but in view of its importance, we feel justified in questioning this omission at this stage.
10 Paragraph 8 of the exposure draft proposes that audit documentation should enable a reviewer to form an understanding from the information contained therein. The equivalent international standard envisages that the reviewer will ordinarily form an understanding through examination of documentation and discussion with the auditor. It is our view that discussion is ordinarily necessary to form an understanding and so it would place an unrealistic expectation on the preparers of documentation if this proposal were retained in the final pronouncement.
11 Paragraph 10 seeks to introduce a requirement to retain copies or abstracts of documents examined. This requirement would only increase the size of the audit file without commensurate benefit as no additional evidential matter is involved. The custody of significant documents, such as contracts, is the responsibility of the client. The auditor may have access to such documents as necessary. Even if such documents were considered to be potentially relevant for peer review purposes, a reviewer would not be able to verify their authenticity without reference to external sources. Accordingly, their true value for peer review is minimal.