Question

1. When would external auditors use the work of other external auditors and how would they incorporate the other auditor's work into their own?

Audit Documentation

2. Why is documenting all information gathered and the conclusions drawn from that information so important to an audit?

3. Generally, each audit procedure or step that the auditor takes is documented with a working paper or series of related working papers. What are some of the specific data elements that all working papers should include? One example of a data element is the date a specific action that is documented on the working paper was done.

Answer 1

The auditor would use the work of other auditors in cases like:
1. Branches of the client being audited by other auditors.
2. Joint auditors are appointed for the audit of a single entity due to factors like size and complexity.
3. Relying on work done by other auditors on stock audit, investment audit, etc..

The auditor can incorporate work done by other auditors by relying on their work for audit evidence, he can use the workings of the other auditors as a basis for forming judgements on those items. For example he can rely on the stock auditor's report to verify existence and valuation of inventory.

Audit documentation is important in the following ways:

1. It provides evidence of the auditor’s basis for a conclusion about the achievement of the overall objective.

2. It provides evidence that the audit was planned and performed in accordance with legal and regulatory requirements.

3. It assists the engagement team to plan and perform the audit.

4. It allows a record of matters of continuing significance to be retained.

Some data elements of audit documentation include:

1. Analysis of significant ratios and trends like gross profit ratio.
2. External confirmations from debtors, creditors.
3. Audit documents relating to client's nature of business like government licenses and approvals.
4. Result of audit testing on depreciation expense.
5. Ageing analysis of accounts receivable.