The Runner's Shop-Case Study 11.1-Auditing Cases

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Case 11.1: The Runners Shop

Relevant Guidance

• AU 339 (SAS 103): Audit Documentation

• Auditing Standard No. 3: Audit Documentation

• International Standard on Auditing 230’ (Revised) (Site - )


1] Describe the purposes of audit documentation and explain why each purpose is important.

According to AU 339.03, “audit documentation provides the principal support for the”: (a) “representation in the auditor’s report that the auditor performed the audit in accordance with GAAS”, and (b) “opinion expressed regarding the financial information or the assertion to the effect that an opinion cannot be expressed”. AU 339.04 goes on to state that this “audit documentation is an essential element of audit quality” and AU 339.05 further states that “audit documentation is the record of audit procedures performed, relevant audit evidence obtained, and conclusions the auditor reached”. Thus individuals can review the audit documentation to see that the audit was performed in accordance with GAAS, they can identify the reasons for the auditor’s opinion, and they can evaluate the quality of the audit.

Paragraph 8 of AU 339 provides a list of additional purposes of audit documentation:

• The audit team will use audit documentation to help plan and perform the audit. It is necessary to plan the audit so that the audit team is aware of the work that needs completed and they have a better idea of how long the engagement will last. The audit team will use the audit documentation when identifying the level of risk they will accept and any high risk areas that need closer examination. The use of audit documentation to perform the audit is essential so that the audit team have an accurate picture of the company’s financial information.

• Auditors who are new to the engagement can review audit documentation from the prior year to get a better understanding of the work performed. Last year’s audit documentation can be reviewed to establish necessary audit procedures and to identify any areas that might be a continued concern.

• Audit team members in a supervisory role can use audit documentation to help direct and supervise the audit work. They can also use audit documentation to review the quality of the work performed. The audit team members who are supervising the audit procedures can efficiently perform their review if adequate documentation is available. This eliminates the need for oral communications that can be lengthy and inaccurate.

• Audit documentation includes the “procedures performed, the audit evidence examined, and the conclusions reached” by the audit team. This “demonstrates the accountability of the audit team for its work”. With adequate audit documentation it is clear what steps the audit team took when performing the audit, providing assurance that the work was performed as indicated. These steps can be traced to show that the correct conclusions were reached.

• Audit documentation is used in future audits of the company, recording any significant issues that would affect the audit opinion. It is possible that current high risk factors can pose a problem beyond the current year audit. Next year’s audit team will review this year’s audit documentation to identify these high risk factors that might affect the current year’s audit opinion.

• Audit documentation is used by quality control reviewers to help “understand how the engagement team reached significant conclusions and whether there is adequate evidential support for those conclusions”. It is important to understand this because business/accounting procedures might need to be improved to correct any misstatements. The ability to identify the support for these conclusions is essential so that the business does not make any unnecessary changes.

• Audit documentation is used by auditors to conduct inspections or peer...
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