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Comments from ACCA
January 2005

General Comments

The Association of Chartered Certified Accountants (ACCA) welcomes the opportunity to comment on proposed ISA 230 (Revised) Audit Documentation , and amendments to ISA 330 The Auditor's Procedures in Response to Assessed Risks , and ISQC 1 Quality Control for Firms that Perform Audits and Reviews of Historical Financial Information and Other Assurance and Related Services Engagements .

In the main, ACCA supports the proposed ISA 230 (Revised) as it will contribute to audit quality and consistency. We suggest, nevertheless, some improvements which we believe will make it more effective.

The exposure draft's explanatory memorandum draws attention to a significant change whereby:

�Audit documentation that the auditor prepares should be sufficient and appropriate to serve two key objectives, viz:

•  To provide a record of the basis for the auditor's report; and

•  To demonstrate that the audit was performed in accordance with ISAs and applicable regulatory and legal requirements.'

Although we agree that these are the two key objectives of audit documentation, they are linked. We are concerned that some auditors may misinterpret the text as requiring, for example, checklist completion simply to prove compliance with ISA. The text uses the words �record' in relation to the basis for the auditor's opinion, and �demonstrate' in relation to compliance with ISA. We suggest that this emphasis be reversed.

Paragraph 2 of proposed ISA 230 (Revised) is as follows:

�The auditor should prepare audit documentation that is sufficient and appropriate to provide a record of the basis for the auditor's report and to demonstrate that the audit was performed in accordance with ISAs and applicable legal and regulatory requirements. '

We consider that paragraph 2 does not clearly convey the message set out in the explanatory memorandum and should be redrafted. It is possible to read it in two different ways. The first, links the words �sufficient and appropriate' to the whole of the sentence (the interpretation set out in the explanatory memorandum), whereas the second reading extends those words only to the part of the sentence dealing with a record of the basis for the auditor's report.

Paragraph 5 lists other purposes that audit documentation serves. Several of these are very important as they relate to documentation necessary for compliance with quality control standards. Such documentation should also be �sufficient and appropriate' for that purpose.

Although the list of �key objectives' could be extended to include them, we do not think that is appropriate. It would be better to present the items in paragraph 5 not as �other purposes' but as an expansion of the two key objectives. This would also assist in understanding what is meant by �the basis for the auditor's report' , as the concept is not otherwise explained.

Paragraph 2 refers to the need to demonstrate that the audit was performed in accordance with applicable regulatory and legal requirements. We suggest that further guidance is needed to assist auditors in deciding which regulatory and legal requirements are within the scope of this requirement. As a general principle, IAASB should not seek to bring within ISA a requirement to document compliance with regulatory or legal requirements. If there are documentation requirements in the regulatory or legal provisions, they need not be duplicated. If there are no such requirements, it would be against public policy to introduce them (as the regulator or legislator has chosen not to do so).

Paragraph 14 specifies an amount in dollars. It would be better to refer to a general monetary unit rather than one of a specific country or countries.

Answers to Specific Questions

We would not support the introduction of a rule but the inclusion of an indication is appropriate as a supplement to the words �without undue delay'.

Do respondents agree that 60 days from the date of the auditor's report represents a reasonable time limit for such a period? If not, please indicate what time period would be considered more appropriate and why ?

This period is reasonable.

Amendment to ISA 330

It is proposed to add a further paragraph to ISA 330 as follows:

�The auditor's documentation should demonstrate that the financial statements agree or reconcile with the underlying accounting records.

As a preliminary to our main concern set out below, we consider that this requirement should be placed on the auditor, not on the documentation (which in itself has no capacity to act).

Given that the auditor is required to document the audit procedures undertaken in relation to the financial statement closing process, we see no justification for imposing this further requirement.

When preparing financial statements, their agreement or reconciliation with the underlying accounting records is invariably carried out to a much greater level of detail than is ever required for audit purposes. The auditor should not be required to duplicate a financial reporting process.

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