PERFORMING CROSS REVIEWS
OVERALL REVIEW PROCEDURES
Essential items the “reviewing auditor” should be on the lookout for:
1. Re-perform procedures: not what you can see; what you should see.
2. Look for faulty assumptions.
3. Look for suspicious circumstances (unusual items).
4. Working papers must be prepared in good form with proper attention to layout, design, and legibility, with complete headings, explanations of sources, and verification of work performed.
5. Each working paper must include as a minimum:
a. Work paper must be signed and dated correctly. (i.e. Preparer sign off cannot be after Reviewer sign off date and all sign offs cannot be after date of audit sign off).
b. Subject - The heading on the working paper should be for the correct section.
c. Client name.
d. Period/Year end.
e. Schedule reference.
f. Objectives.
g. Work done.
i. All procedures on the audit program should be referenced to the AWPs where the work was performed.
ii. Evidence of work performed must be clearly documented and all the supporting documents attached must be clearly linked to the working papers.
iii. All supporting documents must have a heading of what the documents are for and should be clearly highlighted on the specific part that is being referred to in the work papers.
iv. Make sure that explanations that can be verified.
v. Mere copying of figures from the records//discussions with management is not verification.
h. Findings and observations.
i. Conclusions.
i. Conclusions must be appropriately in line with the objectives and audit procedures.
j. All notes must be self-explanatory to the reviewer without having to call the preparer.
k. Working papers must contain evidence of review by supervisory personnel.
l. Are there any obvious unanswered questions?
PLANNING AND AUDIT STRATEGY
The following questions should have been answered by the “joint auditors” in their working papers in this area to be satisfactory:
Engagement Acceptance
1. What is the nature and scope of the audit?
2. How will the audit report and financial statements be used?
3. What is the deadline for completing the audit?
4. Can an engagement team be assembled by the firm that has:
a. The competence required to perform the audit; and
b. The necessary time and resources available?
5. Can the firm and the engagement team comply with ethical requirements?
6. Are there any scope limitations such as unrealistic deadlines or inability to obtain the required audit evidence?
7. For new engagements, has the firm communicated with the predecessor auditor to determine if there are any reasons for not accepting?
8. Are there difficult or time-consuming issues to address (accounting policies, estimates, nature of industry, compliance with legislation, etc.)?
9. Is there any reason to doubt the integrity of the principal owners, senior management, and those charged with governance of the entity?
10. Is there an engagement letter that is currently enforceable?
Planning and Overall Audit Strategy
The following issues should have been addressed by the “joint auditors” in their working papers in this area to be satisfactory:
1. The Scope of the Engagement.
2. Reporting Requirements, Timing, and Communications.
3. Important Factors for Audit Team to Focus on.
4. Significant Changes that will Impact the Audit Approach.
5. Assessment the RMM at the Financial Statement Level (nature of the industry, management’s integrity, and their attitude toward control and competence)
6. Development of Overall Responses.
7. Development of a Resource Management Plan.
8. Audit Team Discussions.
Materiality
The following issues should have been addressed by the “joint auditors” in their working papers in this area to be satisfactory:
1. Qualitative and Quantitative Considerations.
a. Perception of users’ needs.
b. What financial statement areas are of most interest?
c. Profitability trends.
2. Materiality Level for the Financial Statements as a Whole.
3. Performance Materiality.
4. A percentage numerical threshold (or benchmark).
Risk Assessment
The following issues should have been addressed by the “joint auditors” in their working papers in this area to be satisfactory:
1. Business risks.
2. Identification of Fraud Risk Factors.
3. The Entity’s Risk Assessment Process.
4. Assessment of Risks.
5. Assessment of Fraud Risk.
6. Significant Risks.
a. The nature of the risk.
b. Consideration of the effect of any identified internal control related to the risk.
c. The likely magnitude (size) of the potential misstatement (or multiple misstatements).
d. The likelihood (probability) of the risk occurring.
INTERNAL CONTROLS
The following issues should have been addressed by the “joint auditors” in their working papers in this area to be satisfactory:
1. Identify What Risks Require Mitigation.
2. Document Relevant Internal Control.
3. Assess Control Implementation.
4. Material Weaknesses in Control.
ASSESSING RISKS OF MATERIAL MISSTATEMENT
1. Results of engagement team discussions and the significant decisions reached.
2. Key elements of the understanding obtained.
3. The sources of information from which the understanding was obtained.
4. The nature and results of performing risk assessment procedures.
5. The identified and assessed risks of material misstatement at the financial statement and assertion level.
6. Details of significant risks that require special attention.
7. Risks for which substantive procedures alone will not provide sufficient appropriate audit evidence.
RISK RESPONSE
ACCOUNT BALANCES/CLASS OF TRANSACTIONS
Over and above what has been included above:
1. Provides a clear linkage between the assessed risks and the further audit procedures.
2. Assertions tested.
3. Audit procedures/work done per assertion.
4. Population.
5. Controls tested for reliance and impact on sample size.
6. Materiality.
7. Source.
8. Sample selected for each assertion/sample for common assertions.
9. How sample was selected.
10. Referrals or management reporting.
11. Conclusion per assertion.
12. Tick marks.
WHAT DOCUMENTATION THE “JOINT AUDITOR” SHOULD HAVE IN THEIR AUDIT FILE:
Risk Assessment
1. Pre-engagement procedures.
2. Independence assessment.
3. Materiality.
4. Terms of engagement.
5. Firm planning and budgeting documents.
6. Understanding of the entity and its environment.
7. Design and implementation of internal control relevant to the audit.
8. Risk assessment procedures to be performed.
9. Results of risk assessment procedures.
10. Notes on discussions among the engagement team regarding possible causes of material misstatement due to fraud.
11. Risks of material misstatement associated with the assertions being tested.
12. Copy of communications with management and those charged with governance. Information should be organized appropriately to provide a clear link to the significant findings and issues and be understood by an experienced auditor.
Response to Assessed Risks
1. The overall audit strategy and the detailed audit plan response setting out the nature, timing, and extent of all the auditing procedures performed.
2. The nature/characteristics of the specific items selected for examination. There should be enough identifying information that a test could be reperformed if necessary. This also helps to facilitate the investigation of exceptions or inconsistencies.
3. Matters that give rise to significant risks that need to be specifically addressed in the audit.
4. Extent of judgment required in performing work and evaluating results.
5. Accounting estimates require greater judgment and accordingly more extensive documentation.
6. Memoranda, analysis, details of assumptions used and how the validity of the underlying information was established.
Results of Performing Audit Procedures and the Audit Evidence Obtained
1. Completed audit programs.
2. Significance of the evidence obtained to the assertion being tested.
3. A clear explanation of the results obtained from the test and how any exceptions or deviations were followed up. This includes the basis for the test, choice of population, level of assessed risk, sampling intervals, and choice of the starting point.
4. Results of auditing procedures that indicate a need for: Modification of planned auditing procedures; The existence of material misstatements; Omissions in the financial statements; or The existence of significant deficiencies or material weaknesses in internal control over financial reporting.
5. Information that is inconsistent with or contradicts the final conclusions.
6. Any required engagement completion documents that the firm uses.
7. Summary of financial effect of all unadjusted errors.
Identification of Preparers and Reviewers
1. Details of audit team members, consultants, experts and the engagement quality control reviewer (where applicable);
2. Who performed the audit work and when; and
3. Who reviewed the audit documentation and when.
Significant Matters
1. Documentation setting out:
a. Significant matters;
b. Actions taken to address them (including additional evidence obtained); and
c. The basis for the conclusions reached.
Reporting
2. Significant matters.
3. Significant changes in the assessed level of audit risk for particular audit areas, and the response to those changes.
4. Notes of discussions with management and the subsequent responses.
5. Nontrivial uncorrected misstatements.
6. If assistance was provided (where permissible under independence requirements) in preparing draft financial statements, describe the nature of discussions held with management to review the content of the statements.
7. This would include:
8. Dates discussions were held;
9. Explanations provided on the application of complex accounting principles; and
10. Major questions raised by management.
11. File completion checklists.
12. Copy of the financial statements and the auditor’s report cross-referenced to the audit file sections.
13. Copy of any communication with management and those charged with governance.
14. Management Representation letters.
15. Management letters.
16. Consideration of Laws and Regulations in an Audit of Financial Statements.
17. Audit Considerations Relating to Entities Using Service Organizations.
18. Auditing Fair Value Measurements and Disclosures.
19. Related Parties.
20. Subsequent Events.
21. Going Concern.
22. Using the Work of Another Auditor.
23. Using the Work of an Expert.
24. Considering the Work of Internal Auditing
25. Other Information in Documents Containing Audited Financial Statements.
Key Dates
1. Audit report date and the documentation completion date.
COMPLETENESS TESTING
The following represents different types of completeness testing:
2. Analytical procedures (compilation of the balance, comparisons, ratios, trends, analytical inspection for items/amounts/transactions that may have been omitted, inspection for duplication of items).
3. Check the completeness of documentation and transactions ─ number sequence, date sequence, monthly, specific conditions, etc.
4. Follow details in the accounting records (subsidiary ledger, register, other records/statements/lists) through to the details on a balance/total summary (e.g. a list as at year end).
5. Physical inspection or observation.
6. Examine documentation/evidence that may indicate the existence of a transaction/item (minutes of meetings, contracts, forms, correspondence, source documentation, statements from external parties).
7. Identify evidence regarding the initiation of an events or transaction (“the original source”) and follow the identified event or transaction through to its recording in the accounting records
8. Discussions with the personnel who are “close” to a specific balance may indicate completeness, or the omission of certain items.
9. Inspection of unmatched or outstanding items/transactions at year end.
10. Inspection and confirmation of transactions after year end.
11. Checking, or re-performance of reconciliations.
12. Tests of transactions – test individual transactions from the original source documentation through to their recording in the accounting records.
13. Also refer to audit procedures with regard to “cut-off”.
EXISTENCE
1. Analytical procedures (compilation of the balance, comparisons, ratios, trends, analytical inspection for unusual items/amounts/transactions).
2. Details on a balance/total summary must be supported by the details in the accounting records (subsidiary ledger, register, other records/ statements/lists).
3. Physical inspection or observation.
4. Direct external confirmation.
5. Inspection of a valid contract/agreement that confirms the existence of a trade relationship between two or more parties.
6. Examination of other “existence” documentation – application forms, correspondence, other forms, etc.
7. Examination of reconciliations – the validity of individual reconciling items.
8. Tests of transactions – confirm with valid supporting documentation (source documentation and other internal evidence).
9. Compliance with specific statutory and/or regulatory requirements.
RIGHTS AND OBLIGATIONS
1. Direct external confirmation.
2. Physical inspections – aspects regarding rights should be followed up by way of inspection of supporting documentation and/or enquiries.
3. Inspection of formal documentation that establishes a trade relationship.
4. Tests of transactions – confirm with rights/obligations information/ evidence as per the supporting documentation (source documentation and other internal evidence).
5. In the case of an asset, specific follow up to confirm whether the asset is encumbered or not.
VALUATION AND ALLOCATION
1. Verification of historical costs as part of the audit procedures already performed in relation to individual transactions.
2. Tests with regard to the accounting policy accepted:
a. is appropriate in the circumstances – in accordance with financial reporting framework (relevant accounting standard/(s)) applied on a consistent basis has been applied correctly in determining the value as at year end.
3. Direct external confirmation.
4. Physical inspection and observation.
5. Obtaining “value”-information specific to the audit item concerned from sources outside the organisation (thirds parties, markets, media, etc.).
6. Examine evidence after year end which supports the value as at year end.
7. Confirm the “realisation” of the item(s) concerned (i.e. recoverability of assets and settlement of liabilities).
8. Audit fair values.
9. Audit accounting estimates.
10. Value determined by an expert.
Essential items the “reviewing auditor” should be on the lookout for:
1. Re-perform procedures: not what you can see; what you should see.
2. Look for faulty assumptions.
3. Look for suspicious circumstances (unusual items).
4. Working papers must be prepared in good form with proper attention to layout, design, and legibility, with complete headings, explanations of sources, and verification of work performed.
5. Each working paper must include as a minimum:
a. Work paper must be signed and dated correctly. (i.e. Preparer sign off cannot be after Reviewer sign off date and all sign offs cannot be after date of audit sign off).
b. Subject - The heading on the working paper should be for the correct section.
c. Client name.
d. Period/Year end.
e. Schedule reference.
f. Objectives.
g. Work done.
i. All procedures on the audit program should be referenced to the AWPs where the work was performed.
ii. Evidence of work performed must be clearly documented and all the supporting documents attached must be clearly linked to the working papers.
iii. All supporting documents must have a heading of what the documents are for and should be clearly highlighted on the specific part that is being referred to in the work papers.
iv. Make sure that explanations that can be verified.
v. Mere copying of figures from the records//discussions with management is not verification.
h. Findings and observations.
i. Conclusions.
i. Conclusions must be appropriately in line with the objectives and audit procedures.
j. All notes must be self-explanatory to the reviewer without having to call the preparer.
k. Working papers must contain evidence of review by supervisory personnel.
l. Are there any obvious unanswered questions?
PLANNING AND AUDIT STRATEGY
The following questions should have been answered by the “joint auditors” in their working papers in this area to be satisfactory:
Engagement Acceptance
1. What is the nature and scope of the audit?
2. How will the audit report and financial statements be used?
3. What is the deadline for completing the audit?
4. Can an engagement team be assembled by the firm that has:
a. The competence required to perform the audit; and
b. The necessary time and resources available?
5. Can the firm and the engagement team comply with ethical requirements?
6. Are there any scope limitations such as unrealistic deadlines or inability to obtain the required audit evidence?
7. For new engagements, has the firm communicated with the predecessor auditor to determine if there are any reasons for not accepting?
8. Are there difficult or time-consuming issues to address (accounting policies, estimates, nature of industry, compliance with legislation, etc.)?
9. Is there any reason to doubt the integrity of the principal owners, senior management, and those charged with governance of the entity?
10. Is there an engagement letter that is currently enforceable?
Planning and Overall Audit Strategy
The following issues should have been addressed by the “joint auditors” in their working papers in this area to be satisfactory:
1. The Scope of the Engagement.
2. Reporting Requirements, Timing, and Communications.
3. Important Factors for Audit Team to Focus on.
4. Significant Changes that will Impact the Audit Approach.
5. Assessment the RMM at the Financial Statement Level (nature of the industry, management’s integrity, and their attitude toward control and competence)
6. Development of Overall Responses.
7. Development of a Resource Management Plan.
8. Audit Team Discussions.
Materiality
The following issues should have been addressed by the “joint auditors” in their working papers in this area to be satisfactory:
1. Qualitative and Quantitative Considerations.
a. Perception of users’ needs.
b. What financial statement areas are of most interest?
c. Profitability trends.
2. Materiality Level for the Financial Statements as a Whole.
3. Performance Materiality.
4. A percentage numerical threshold (or benchmark).
Risk Assessment
The following issues should have been addressed by the “joint auditors” in their working papers in this area to be satisfactory:
1. Business risks.
2. Identification of Fraud Risk Factors.
3. The Entity’s Risk Assessment Process.
4. Assessment of Risks.
5. Assessment of Fraud Risk.
6. Significant Risks.
a. The nature of the risk.
b. Consideration of the effect of any identified internal control related to the risk.
c. The likely magnitude (size) of the potential misstatement (or multiple misstatements).
d. The likelihood (probability) of the risk occurring.
INTERNAL CONTROLS
The following issues should have been addressed by the “joint auditors” in their working papers in this area to be satisfactory:
1. Identify What Risks Require Mitigation.
2. Document Relevant Internal Control.
3. Assess Control Implementation.
4. Material Weaknesses in Control.
ASSESSING RISKS OF MATERIAL MISSTATEMENT
1. Results of engagement team discussions and the significant decisions reached.
2. Key elements of the understanding obtained.
3. The sources of information from which the understanding was obtained.
4. The nature and results of performing risk assessment procedures.
5. The identified and assessed risks of material misstatement at the financial statement and assertion level.
6. Details of significant risks that require special attention.
7. Risks for which substantive procedures alone will not provide sufficient appropriate audit evidence.
RISK RESPONSE
ACCOUNT BALANCES/CLASS OF TRANSACTIONS
Over and above what has been included above:
1. Provides a clear linkage between the assessed risks and the further audit procedures.
2. Assertions tested.
3. Audit procedures/work done per assertion.
4. Population.
5. Controls tested for reliance and impact on sample size.
6. Materiality.
7. Source.
8. Sample selected for each assertion/sample for common assertions.
9. How sample was selected.
10. Referrals or management reporting.
11. Conclusion per assertion.
12. Tick marks.
WHAT DOCUMENTATION THE “JOINT AUDITOR” SHOULD HAVE IN THEIR AUDIT FILE:
Risk Assessment
1. Pre-engagement procedures.
2. Independence assessment.
3. Materiality.
4. Terms of engagement.
5. Firm planning and budgeting documents.
6. Understanding of the entity and its environment.
7. Design and implementation of internal control relevant to the audit.
8. Risk assessment procedures to be performed.
9. Results of risk assessment procedures.
10. Notes on discussions among the engagement team regarding possible causes of material misstatement due to fraud.
11. Risks of material misstatement associated with the assertions being tested.
12. Copy of communications with management and those charged with governance. Information should be organized appropriately to provide a clear link to the significant findings and issues and be understood by an experienced auditor.
Response to Assessed Risks
1. The overall audit strategy and the detailed audit plan response setting out the nature, timing, and extent of all the auditing procedures performed.
2. The nature/characteristics of the specific items selected for examination. There should be enough identifying information that a test could be reperformed if necessary. This also helps to facilitate the investigation of exceptions or inconsistencies.
3. Matters that give rise to significant risks that need to be specifically addressed in the audit.
4. Extent of judgment required in performing work and evaluating results.
5. Accounting estimates require greater judgment and accordingly more extensive documentation.
6. Memoranda, analysis, details of assumptions used and how the validity of the underlying information was established.
Results of Performing Audit Procedures and the Audit Evidence Obtained
1. Completed audit programs.
2. Significance of the evidence obtained to the assertion being tested.
3. A clear explanation of the results obtained from the test and how any exceptions or deviations were followed up. This includes the basis for the test, choice of population, level of assessed risk, sampling intervals, and choice of the starting point.
4. Results of auditing procedures that indicate a need for: Modification of planned auditing procedures; The existence of material misstatements; Omissions in the financial statements; or The existence of significant deficiencies or material weaknesses in internal control over financial reporting.
5. Information that is inconsistent with or contradicts the final conclusions.
6. Any required engagement completion documents that the firm uses.
7. Summary of financial effect of all unadjusted errors.
Identification of Preparers and Reviewers
1. Details of audit team members, consultants, experts and the engagement quality control reviewer (where applicable);
2. Who performed the audit work and when; and
3. Who reviewed the audit documentation and when.
Significant Matters
1. Documentation setting out:
a. Significant matters;
b. Actions taken to address them (including additional evidence obtained); and
c. The basis for the conclusions reached.
Reporting
2. Significant matters.
3. Significant changes in the assessed level of audit risk for particular audit areas, and the response to those changes.
4. Notes of discussions with management and the subsequent responses.
5. Nontrivial uncorrected misstatements.
6. If assistance was provided (where permissible under independence requirements) in preparing draft financial statements, describe the nature of discussions held with management to review the content of the statements.
7. This would include:
8. Dates discussions were held;
9. Explanations provided on the application of complex accounting principles; and
10. Major questions raised by management.
11. File completion checklists.
12. Copy of the financial statements and the auditor’s report cross-referenced to the audit file sections.
13. Copy of any communication with management and those charged with governance.
14. Management Representation letters.
15. Management letters.
16. Consideration of Laws and Regulations in an Audit of Financial Statements.
17. Audit Considerations Relating to Entities Using Service Organizations.
18. Auditing Fair Value Measurements and Disclosures.
19. Related Parties.
20. Subsequent Events.
21. Going Concern.
22. Using the Work of Another Auditor.
23. Using the Work of an Expert.
24. Considering the Work of Internal Auditing
25. Other Information in Documents Containing Audited Financial Statements.
Key Dates
1. Audit report date and the documentation completion date.
COMPLETENESS TESTING
The following represents different types of completeness testing:
2. Analytical procedures (compilation of the balance, comparisons, ratios, trends, analytical inspection for items/amounts/transactions that may have been omitted, inspection for duplication of items).
3. Check the completeness of documentation and transactions ─ number sequence, date sequence, monthly, specific conditions, etc.
4. Follow details in the accounting records (subsidiary ledger, register, other records/statements/lists) through to the details on a balance/total summary (e.g. a list as at year end).
5. Physical inspection or observation.
6. Examine documentation/evidence that may indicate the existence of a transaction/item (minutes of meetings, contracts, forms, correspondence, source documentation, statements from external parties).
7. Identify evidence regarding the initiation of an events or transaction (“the original source”) and follow the identified event or transaction through to its recording in the accounting records
8. Discussions with the personnel who are “close” to a specific balance may indicate completeness, or the omission of certain items.
9. Inspection of unmatched or outstanding items/transactions at year end.
10. Inspection and confirmation of transactions after year end.
11. Checking, or re-performance of reconciliations.
12. Tests of transactions – test individual transactions from the original source documentation through to their recording in the accounting records.
13. Also refer to audit procedures with regard to “cut-off”.
EXISTENCE
1. Analytical procedures (compilation of the balance, comparisons, ratios, trends, analytical inspection for unusual items/amounts/transactions).
2. Details on a balance/total summary must be supported by the details in the accounting records (subsidiary ledger, register, other records/ statements/lists).
3. Physical inspection or observation.
4. Direct external confirmation.
5. Inspection of a valid contract/agreement that confirms the existence of a trade relationship between two or more parties.
6. Examination of other “existence” documentation – application forms, correspondence, other forms, etc.
7. Examination of reconciliations – the validity of individual reconciling items.
8. Tests of transactions – confirm with valid supporting documentation (source documentation and other internal evidence).
9. Compliance with specific statutory and/or regulatory requirements.
RIGHTS AND OBLIGATIONS
1. Direct external confirmation.
2. Physical inspections – aspects regarding rights should be followed up by way of inspection of supporting documentation and/or enquiries.
3. Inspection of formal documentation that establishes a trade relationship.
4. Tests of transactions – confirm with rights/obligations information/ evidence as per the supporting documentation (source documentation and other internal evidence).
5. In the case of an asset, specific follow up to confirm whether the asset is encumbered or not.
VALUATION AND ALLOCATION
1. Verification of historical costs as part of the audit procedures already performed in relation to individual transactions.
2. Tests with regard to the accounting policy accepted:
a. is appropriate in the circumstances – in accordance with financial reporting framework (relevant accounting standard/(s)) applied on a consistent basis has been applied correctly in determining the value as at year end.
3. Direct external confirmation.
4. Physical inspection and observation.
5. Obtaining “value”-information specific to the audit item concerned from sources outside the organisation (thirds parties, markets, media, etc.).
6. Examine evidence after year end which supports the value as at year end.
7. Confirm the “realisation” of the item(s) concerned (i.e. recoverability of assets and settlement of liabilities).
8. Audit fair values.
9. Audit accounting estimates.
10. Value determined by an expert.
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