 In this presentation, we will take a look at audit documentation. Keeping in mind our objective within the audit to give an opinion on the financial statements to be in accordance with whatever standard they are said to be in accordance with, such as... First, a word from our sponsor! Well, actually, these are just items that we picked from the YouTube Shopping Affiliate Program, but that's actually good for you! Because these aren't things that were just given to us from some large corporation which we don't even use in exchange for us selling them to you. These are things that we actually researched, purchased, and used ourselves. Acer 27-inch monitor. I've been using an Acer monitor as my primary monitor for a few years now. Well, this is the first Acer monitor that I have used after having used a series of different brands of monitors in the past. The Acer monitor has been performing well and I'm trusting the Acer brand more and more as I use the monitor. I have a 27-inch monitor which I think is ideal for what I do, which is of course the screen recording and the editing. If you would like a commercial-free experience, consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com where we have many different courses you can purchase one at a time or have a subscription model given you access to all the courses. Courses which are well-organized have other resources like Excel files and PDF files to download and no commercials. Generally accepted accounting principles. In order to do that we will have audit procedures and of course we will need to document those audit procedures in order to support our decision. Now we're going to be talking more about that documentation, the audit documentation. Audit documentation is auditors records of the audit procedures performed, relevant evidence obtained, and conclusions reached. So let's read that one more time. The audit documentation, auditors records of audit procedures performed. So that's going to give us, tell us what did we actually do within the audit in order to get evidence for the assertions being made or for the opinion that we give on the financial statements. And then we have the relevant evidence obtained about the evidence that is obtained. So we want to document the evidence that is obtained and the conclusion that we reach. Of course, our conclusion will be based on the evidence. We're going to go where the evidence leads in terms of the conclusion audit documentation or working papers functions. These are the functions of the audit documentation. We often call them the working papers, working papers being something that we put together on the audit side of things. We're going to include the working papers as part of our audit documentation, part of our evidence, part of our support to our opinion. So they provide support for the audit report. So when we create the audit report, which provides our audit opinion, the documentation will, of course, support that opinion. Aid in the planning, performance, and supervision of the audit. So as we go through the documentation or as we go through the audit, we want to document as we go and the way we document as we go will be in such a fashion that it's going to help us to move forward with the planning, performance and supervision of the actual audit process. That will provide a focal point for reviewing work of subordinates, helps to provide a basis for quality reviews. So the documentation is going to be something that we're going to be using in order to review as well. The more standardized the procedures that we perform and the more standardized the documentation of those procedures that we have, the easier it is for us to delegate those procedures to others and then review the work that is being done by them. Audit documentation should show how the audit complied with auditing and related practice standards, show evidence for the auditor's conclusion about each material financial statement assertion, show that the underlying accounting records agree or reconcile to the financial statements and contain a written audit program explaining auditing procedures necessary to accomplish audit objectives as well as be constructed in such a way to enable an experienced reviewer too. So we're talking about another reviewer. If we're taking a look at this documentation, it's supporting our opinion. What if someone else was to look at that documentation and see whether it does indeed support our opinion? It has to be constructed in such a way that an experienced reviewer of that documentation could understand the nature, timing, extent and results of audit procedures, evidence obtained and conclusions reached and determine who performed and reviewed the work, show that the dates of the work and the reviews of it. So the documentation of course should give the evidence and a third party who is experienced with documentation related to audits should be able to understand the nature, timing, extent and results. And the working paper should also indicate who did the procedures and who's in charge as well. So we'll often have initials or some type of initial or signature process saying, hey, this is the person that did the procedure. Here's the person that reviewed the procedure, types of audit documentation files. Now, when we store our audit documentation, we're typically going to have a client file and oftentimes it'll be grouped in two types of client files. We'll have a client file for the permanent files and then we'll have a client file for the current file. So this current files, it's going to be the current information that we're working on, the current audit, the current year that we're going to be working on. The permanent file, we're going to have that type of information that's going to be there for long periods of time. So when you think about these two types of files, if you're setting up your auditing system, you're setting up your system for clients in general, if you're public accounting, oftentimes you want to think what types of files are going to be there that aren't going to change, that I want to have a permanent file, they're going to be there for a long period of time. What type of files do I want to put in the current file? These are files that possibly, if I do a yearly audit, are going to change each year. These are the things that are going to change each year. And so that's a typical type of grooming, permanent file type of activities, the corporate charger. Obviously, that's not going to be something that's going to change all the time. We put that in the permanent file. Significant contracts, so if they're going to be long term contracts for a long period of time, we want to have that in the permanent file, possibly the chart of accounts. The internal controls is something that could be set up and established for a long period of time. Organizational charts are going to be something that typically have a longer period of time because when we're considering the organizational charts, we're typically thinking of the upper management of the organization, term of stock and bonds issued. When we think about the current file, we're thinking about those types of things that are going to happen in the current time period. So the current audit information that we're doing often happening on a yearly basis. So these are things that we might group basically on a yearly basis in terms of the current file that we are working with. So we have the adjusting entries. We've got the audit plan and programs for that current audit of the current year, working trial balance for the current audit current year. We have the current financial statements and auditors reports for the current year, the minutes for the current time period and the working papers. So as we go through the audit, then most of what we'll do is we'll take the current year from the last year, we'll look at how everything was going to be formatted. We'll start with the current year for this year and any time we need to dip into those type of items that are going to be long term type of contracts or something like that, then we'll jump over to the permanent file where those things will be housed. Audit documentation format will typically include something like and different type of firms may have different formats of their working papers. Also note that working papers don't need to be the most formal type of working paper in order to be something that will be useful within audit evidence. But what we do want in the working papers and the more standardized the working papers are are some of this type of necessary information that will be included in this format. But as we go through this format, don't get the impression that every type of working paper is going to be exactly the same or have the exact same type of format. We want to have this key information on it. And this is a good format to have the audit documentation of working papers in. So we often have the heading, which would include the entity name, the title of the working paper, which of course will give us an idea of what this working paper is trying to do or what evidence it's providing for us. The entities year end. So we want to know what year end this working paper is applied to. Then we have indexing and cross referencing. These are going to be indications that provide a trail from financial statement to audit documentation. So we're going to use some type of indexing or references within our working paper providing that trail from the financial statements to the audit documentation. This will become more apparent when we go through some examples of the audit process of specific type of accounts. You can imagine basically us taking a trial balance, labeling that trial balance and tick marking off in such a way that we can indicate which working paper is going to be tied to which type of line item on the trial balance or the chart of accounts, which we are auditing. We want to basically be able to tie those things out indexing and cross referencing to do that. Then we have tick marks indications next to work paper items showing auditor actions and reviewer actions. So we're going to have them tick marks, which are going to show the auditor action and reviewer action. Again, this will become more apparent when we actually put together working papers for particular assertions and account balances. And just note that different types of organizations may use different types of methods for their tick marks and for their indexing and cross referencing, but we need to have some indication of the indexing and cross referencing. We need to know this information. We need to know, you know, who's the entity. We would like the title. We want the entities year end. We want to know what the account is that we're working on and who it is that's going to be putting together this information. Who it is that is going to be reviewing this information and typically CPA firms will have a systematic set of formats in order to do their indexing, cross referencing and tick marks. Documentation retentions documentation should be organized in such a way that evidence supporting financial statements amounts can be easily found. So note as we store this documentation, we want to think about down the line this supporting evidence. Obviously, as we complete the audit, as we do the work, it's fresh in our mind and we can explain it to anybody if they were to ask about it. But as time passes, of course, some of the people that worked on the audit may not even be in the same organization in the same firm anymore. We want to make sure that we have the documentation in such a format that it does provide the necessary evidence to support the opinion that is given. And of course, part of that is going to be the way that we organize part of that is going to be the way we cross reference and we use tick marks within the documentation. Audit documentation is property of the auditor. This includes documentation prepared by the entity at the auditor's request and this is going to be an important distinction when we think about the working papers, although the working pagers, the documentation we put together is about the company that we are auditing. The working papers themselves are part of our audit. So any working papers we put together as evidence is going to be part of the audit, not something that's going to be the property of the company. That includes working papers that we put together within the auditing process. It also includes any kind of calculations that we ask from the company to put together as part or in conjunction with the audit process. Documentation should be retained for a number of years from the completion date of the engagement of the engagement per the Sarbanes-Oxley Act.