ISA (NZ) 230

1. This International Standard on Auditing (New Zealand) (ISA (NZ)) deals with the auditor’s responsibility to prepare audit documentation for an audit of financial statements. The Appendix lists other ISAs (NZ) that contain specific documentation requirements and guidance. The specific documentation requirements of other ISAs (NZ) do not limit the application of this ISA (NZ). Law or regulation may establish additional documentation requirements.

2. Audit documentation that meets the requirements of this ISA (NZ) and the specific documentation requirements of other relevant ISAs (NZ) and ASs provides:

1. Evidence of the auditor’s basis for a conclusion about the achievement of the overall objectives of the auditor and;¹

2. Evidence that the audit was planned and performed in accordance with ISAs (NZ) and applicable legal and regulatory requirements.

3. Audit documentation serves a number of additional purposes, including the following:

• Assisting the engagement team to plan and perform the audit.

• Assisting members of the engagement team responsible for supervision to direct and supervise the audit work, and to discharge their review responsibilities in accordance with ISA (NZ) 220 (Revised).²

• Enabling the engagement team to be accountable for its work.

• Retaining a record of matters of continuing significance to future audits.

• Enabling the conduct of engagement quality reviews,³ other types of engagement reviews⁴ and monitoring activities under the firm’s system of quality management.

• Enabling the conduct of external inspections in accordance with applicable legal, regulatory or other requirements.

4. This ISA (NZ) is effective for audits of financial statements for periods beginning on or after 1 September, 2011. [Note: For the effective dates of paragraphs changed or added by an Amending Standard see History of Amendments].

5. The objective of the auditor is to prepare documentation that provides:

1. A sufficient and appropriate record of the basis for the auditor’s report; and

2. Evidence that the audit was planned and performed in accordance with ISAs (NZ) and applicable legal and regulatory requirements.

6. For purposes of the ISAs (NZ), the following terms have the meanings attributed below:

1. Audit documentation – The record of audit procedures performed, relevant audit evidence obtained, and conclusions the auditor reached (terms such as “working papers” or “workpapers” are also sometimes used).

2. Audit file – One or more folders or other storage media, in physical or electronic form, containing the records that comprise the audit documentation for a specific engagement.

3. Experienced auditor – An individual (whether internal or external to the firm) who has practical audit experience, and a reasonable understanding of:

   1. Audit processes;

   2. ISAs (NZ) and applicable legal and regulatory requirements;

   3. The business environment in which the entity operates; and

   4. Auditing and financial reporting issues relevant to the entity’s industry.

7. The auditor shall prepare audit documentation on a timely basis. (Ref: Para. A1)

8. The auditor shall prepare audit documentation that is sufficient to enable an experienced auditor, having no previous connection with the audit, to understand: (Ref: Para. A2- A5, A16-A17)

1. The nature, timing, and extent of the audit procedures performed to comply with ISAs (NZ) and applicable legal and regulatory requirements; (Ref: Para. A6-A7)

2. The results of the audit procedures performed, and the audit evidence obtained; and

3. Significant matters arising during the audit, the conclusions reached thereon, and significant professional judgements made in reaching those conclusions. (Ref: Para. A8-A11)

9. In documenting the nature, timing and extent of audit procedures performed, the auditor shall record:

1. The identifying characteristics of the specific items or matters tested; (Ref: Para. A12)

2. Who performed the audit work and the date such work was completed; and

3. Who reviewed the audit work performed and the date and extent of such review. (Ref: Para. A13)

10. The auditor shall document discussions of significant matters with management, those charged with governance, and others, including the nature of the significant matters discussed and when and with whom the discussions took place. (Ref: Para. A14)

11. If the auditor identified information that is inconsistent with the auditor’s final conclusion regarding a significant matter, the auditor shall document how the auditor addressed the inconsistency. (Ref: Para. A15)

12. If, in exceptional circumstances, the auditor judges it necessary to depart from a relevant requirement in an ISA (NZ), the auditor shall document how the alternative audit procedures performed achieve the aim of that requirement, and the reasons for the departure. (Ref: Para. A18-A19)

13. If, in exceptional circumstances, the auditor performs new or additional audit procedures or draws new conclusions after the date of the auditor’s report, the auditor shall document: (Ref: Para. A20)

1. The circumstances encountered;

2. The new or additional audit procedures performed, audit evidence obtained, and conclusions reached, and their effect on the auditor’s report; and

3. When and by whom the resulting changes to audit documentation were made and reviewed.

14. The auditor shall assemble the audit documentation in an audit file and complete the administrative process of assembling the final audit file on a timely basis after the date of the auditor’s report. (Ref: Para. A21-A22)

15. After the assembly of the final audit file has been completed, the auditor shall not delete or discard audit documentation of any nature before the end of its retention period. (Ref: Para. A23)

16. In circumstances other than those envisaged in paragraph 13 where the auditor finds it necessary to modify existing audit documentation or add new audit documentation after the assembly of the final audit file has been completed, the auditor shall, regardless of the nature of the modifications or additions, document: (Ref: Para. A24)

1. The specific reasons for making them; and

2. When and by whom they were made and reviewed.

A1. Preparing sufficient and appropriate audit documentation on a timely basis helps to enhance the quality of the audit and facilitates the effective review and evaluation of the audit evidence obtained and conclusions reached before the auditor’s report is finalised. Documentation prepared after the audit work has been performed is likely to be less accurate than documentation prepared at the time such work is performed.

A2. The form, content and extent of audit documentation depend on factors such as:

A3. Audit documentation may be recorded on paper or on electronic or other media.

Examples of audit documentation include:

A4. The auditor need not include in audit documentation superseded drafts of working papers and financial statements, notes that reflect incomplete or preliminary thinking, previous copies of documents corrected for typographical or other errors, and duplicates of documents.

A5. Oral explanations by the auditor, on their own, do not represent adequate support for the work the auditor performed or conclusions the auditor reached, but may be used to explain or clarify information contained in the audit documentation.

A6. In principle, compliance with the requirements of this ISA (NZ) will result in the audit documentation being sufficient and appropriate in the circumstances. Other ISAs (NZ) contain specific documentation requirements that are intended to clarify the application of this ISA (NZ) in the particular circumstances of those other ISAs (NZ). The specific documentation requirements of other ISAs (NZ) do not limit the application of this ISA (NZ). Furthermore, the absence of a documentation requirement in any particular ISA (NZ) is not intended to suggest that there is no documentation that will be prepared as a result of complying with that ISA (NZ).

A7. [Amended by the NZAuASB.]

NZA7.1 Audit documentation provides evidence that the audit complies with the ISAs (NZ). However, it is neither necessary nor practicable for the auditor to document every matter considered, or professional judgement made, in an audit. Further, it is unnecessary for the auditor to document separately (as in a checklist, for example) compliance with matters for which compliance is demonstrated by documents included within the audit file. For example:

A8. Judging the significance of a matter requires an objective analysis of the facts and circumstances. Examples of significant matters include:

A9. An important factor in determining the form, content and extent of audit documentation of significant matters is the extent of professional judgement exercised in performing the work and evaluating the results. Documentation of the professional judgements made, where significant, serves to explain the auditor’s conclusions and to reinforce the quality of the judgement. Such matters are of particular interest to those responsible for reviewing audit documentation, including those carrying out subsequent audits when reviewing matters of continuing significance (for example, when performing a retrospective review of accounting estimates).

A10. Some examples of circumstances in which, in accordance with paragraph 8, it is appropriate to prepare audit documentation relating to the use of professional judgement include, where the matters and judgements are significant:

A11. The auditor may consider it helpful to prepare and retain as part of the audit documentation a summary (sometimes known as a completion memorandum) that describes the significant matters identified during the audit and how they were addressed, or that includes cross-references to other relevant supporting audit documentation that provides such information. Such a summary may facilitate effective and efficient reviews and inspections of the audit documentation, particularly for large and complex audits. Further, the preparation of such a summary may assist the auditor’s consideration of the significant matters. It may also help the auditor to consider whether, in light of the audit procedures performed and conclusions reached, there is any individual relevant ISA (NZ) objective that the auditor cannot achieve that would prevent the auditor from achieving the overall objectives of the auditor.

A12. Recording the identifying characteristics serves a number of purposes. For example, it enables the engagement team to be accountable for its work and facilitates the investigation of exceptions or inconsistencies. Identifying characteristics will vary with the nature of the audit procedure and the item or matter tested. For example:

A13. ISA (NZ) 220 (Revised) contains requirements and guidance on the review of audit documentation.⁸ The requirement to document who reviewed the audit work performed does not imply a need for each specific working paper to include evidence of review. The requirement, however, means documenting what audit work was reviewed, who reviewed such work, and when it was reviewed.

A14. The documentation is not limited to records prepared by the auditor but may include other appropriate records such as minutes of meetings prepared by the entity’s personnel and agreed by the auditor. Others with whom the auditor may discuss significant matters may include other personnel within the entity, and external parties, such as persons providing professional advice to the entity.

A15. The requirement to document how the auditor addressed inconsistencies in information does not imply that the auditor needs to retain documentation that is incorrect or superseded.

A16. The audit documentation for the audit of a smaller entity is generally less extensive than that for the audit of a larger entity. Further, in the case of an audit where the engagement partner performs all the audit work, the documentation will not include matters that might have to be documented solely to inform or instruct members of an engagement team, or to provide evidence of review by other members of the team (for example, there will be no matters to document relating to team discussions or supervision). Nevertheless, the engagement partner complies with the overriding requirement in paragraph 8 to prepare audit documentation that can be understood by an experienced auditor, as the audit documentation may be subject to review by external parties for regulatory or other purposes.

A17. When preparing audit documentation, the auditor of a smaller entity may also find it helpful and efficient to record various aspects of the audit together in a single document, with cross-references to supporting working papers as appropriate. Examples of matters that may be documented together in the audit of a smaller entity include the understanding of the entity its environment, the applicable financial reporting framework, and the entity’s system of internal control, the overall audit strategy and audit plan, materiality determined in accordance with ISA (NZ) 320,⁹ assessed risks, significant matters noted during the audit, and conclusions reached.

A18. The requirements of the ISAs (NZ) are designed to enable the auditor to achieve the objectives specified in the ISAs (NZ), and thereby the overall objectives of the auditor. Accordingly, other than in exceptional circumstances, the ISAs (NZ) call for compliance with each requirement that is relevant in the circumstances of the audit.

A19. The documentation requirement applies only to requirements and mandatory provisions that are relevant in the circumstances. A requirement is not relevant¹⁰ only in the cases where:

1. The entire ISA (NZ) is not relevant (for example, if an entity does not have an internal audit function, nothing in ISA (NZ) 610 (Revised 2013)¹¹ is relevant); or

2. The requirement is conditional and the condition does not exist (for example, the requirement to modify the auditor’s opinion where there is an inability to obtain sufficient appropriate audit evidence, and there is no such inability).

A20. Examples of exceptional circumstances include facts which become known to the auditor after the date of the auditor’s report but which existed at that date and which, if known at that date, might have caused the financial statements to be amended or the auditor to modify the opinion in the auditor’s report.¹² The resulting changes to the audit documentation are reviewed in accordance with the review responsibilities set out in ISA (NZ) 220 (Revised).¹³

A21. Professional and Ethical Standard 3 requires firms’ systems of quality management to establish a quality objective that addresses the assembly of engagement documentation on a timely basis after the date of the engagement reports.¹⁴ An appropriate time limit within which to complete the assembly of the final audit file is ordinarily not more than 60 days after the date of the auditor’s report.¹⁵

A22. The completion of the assembly of the final audit file after the date of the auditor’s report is an administrative process that does not involve the performance of new audit procedures or the drawing of new conclusions. Changes may, however, be made to the audit documentation during the final assembly process if they are administrative in nature. Examples of such changes include:

A23. Professional and Ethical Standard 3 requires firms’ systems of quality management to establish a quality objective to address the appropriate maintenance and retention of engagement documentation to meet the needs of the firm and to comply with law, regulation, relevant ethical requirements, or professional standards.¹⁶ The retention period for audit engagements ordinarily is no shorter than five years from the date of the auditor’s report, or, if later, the date of the auditor’s report on the group financial statements, when applicable.¹⁷

A24. An example of circumstances in which the auditor may find it necessary to modify existing audit documentation or add new audit documentation after file assembly has been completed is the need to clarify existing audit documentation arising from comments received during monitoring activities or external inspections.