The New Audit Documentation Requirements; SAS No. 96 Raises the Bar for Audit Documentation, Adding Specific Requirements in Several Areas

The AICPA issued its first standard on working papers 1967. Now, working papers--which often consist of electronic files and have been renamed audit documentation--are the subject of new guidance from the auditing standards board (ASB). Issued January, Statement on Auditing Standards (SAS) no. 96, Audit Documentation, provides general guidance on the nature and extent of documentation necessary to support an auditor's and specific documentation guidance for several other SASs. The new statement is effective for audits of financial statements for periods beginning on or after May 15, 2002, although earlier application is permitted. This article discusses SAS no. 96's major requirements and how they affect auditors. Among these changes are factors the auditor should consider determining the nature and extent of documentation for a particular procedure. In addition, the statement requires the auditor to document certain types of evidence and significant findings or issues. The exhibit on page 55 compares the major requirements of SAS no. 96 with those of the superseded SAS no. 41, Working Papers. SAS no. 96's provisions address peer reviewers' concerns about the quality of documentation of evidence and significant conclusions. As a result of the SAS no. 96 guidance, auditors may be able to better demonstrate compliance with GAAS. SAS no. 96 also responds to some of the issues and recommendations the Public Oversight Board's Panel on Audit Effectiveness raised its August 2000 Report and Recommendations (See Front Line Views, JofA, Dec.00, page 20, www.aicpa.org/pubs/jofa/ dec2OOO/news_fv.htm.). AUDIT DOCUMENTATION OBJECTIVES SAS no. 41 said that documentation serves mainly to provide the principal support for the auditor's report and to help the auditor conduct and supervise the audit. SAS no. 96 reaffirms these objectives. It's not feasible for auditors to document all the evidence they obtain and conclusions they reach on an engagement. Therefore, the board carried forward a SAS no. 41 footnote that stated there is no intention to imply the auditor would be precluded from supporting his or her by other means in addition to [audit documentation]. This enables auditors, when necessary, to supplement or clarify information the documentation, which itself must meet all the new statement's requirements. A CPA firm may want to use documentation for purposes other than those stated SAS no. 96. For example, it understandably may choose to examine documentation to determine whether an engagement complied with the firm's quality control policies and procedures. Also, certain third parties may want to use the documentation for other purposes. But given the overall objective of a GAAS audit--to express an opinion on the fairness with which the financial statements present, all material respects, the financial position, results of operations and cash flows conformity with GAAP--the ASB developed guidance that would satisfy the needs of those parties involved the performance, supervision and review of the audit. DOCUMENTATION OF AUDIT EVIDENCE Under the new guidance, the documentation should be sufficient to * Enable engagement team members with supervision and review responsibilities to understand the evidence obtained and the nature, timing, extent and results of auditing procedures performed. * Indicate the engagement team member(s) who performed and reviewed the work For the purposes of these requirements, the ASB intended--although the statement does not specifically say so--that auditors consider any applicable second-partner reviewer a member of the engagement team. SAS no. 96 introduces factors the auditor must consider determining the nature and extent of documentation for a particular area or procedure. Although the auditor exercises professional judgment making this determination, he or she must take into account each of the factors, which are * Risk of material misstatement associated with the assertion or with the account or class of transactions. …