Common Audit File Weaknesses
Our firm carries out many cold file reviews of audit files and comes across many varieties of audit file weaknesses with varying degrees of seriousness.
In the following series of blogs, we are going to highlight the more typical audit file weaknesses that we encounter.
We will also indicate some key tips that will:
- save time and effort in producing more effective audit files; and
- ensure that your firm is better prepared for its next regulatory inspection.
Audit Planning (ISA 300)
What a logical place to start?
Planning the audit properly is the key to an efficient and effective audit assignment. This is one of the areas which is often poorly documented. In most audit teams knowledge of the client, their business and associated risks among the team is good, yet the documentation of this is often too brief (e.g. missing an organisation chart) and does not fully embrace the requirements of the recently revised risk and fraud ISAs (ISA 315 and ISA 240).
Tips for a better audit file
The planning memorandum should summarise:
-
- The key matters to be addressed in the audit;
- The detailed tests that will be performed in these areas;
- Materiality levels set – don’t follow the previous year materiality levels blindly, especially if the results are showing losses or a break-even, instead of profits;
- Stocks – Include a map of the warehouse location, photographs of the more expensive stock items (with an explanatory index);
- The names of the 5 largest suppliers/customers
- Names of key management personnel and years of service;
- Related parties – especially dormant ones i.e. those that qualify as related but have no transactions/balances with the audited entity yet.
More weaknesses and tips next week.
For more on engagement and representation letter templates and a variety of CPD webinars on money laundering and other accounting/audit related topics, please go to our website for:
- Our latest CPD Webinar on The Main Changes in Irish GAAP (recorded July 2024)
- Anti-Money Laundering Policies Controls and Procedures Manual (March 2022) — View the table of contents
- AML Webinar (December 2023) available here, which accompanies the AML Manual. It explains the latest legal AML reporting position for accountancy firms and includes a quiz. Upon completion you receive a CPD certificate for attendance in your inbox.
- Letters of engagement and similar templates—Please visit our website here where immediate downloads are available in Word format. A bulk discount is available for orders of five or more items bought together.
ISQM TOOLKIT, or if you prefer to chat through the different audit risks and potential appropriate responses presented by this new standard. We typically tailor ISQM training and brainstorming sessions to suit your firm’s unique requirements. Please contact John McCarthy FCA by email at john@jmcc.ie.
