Documentation (Ref: Para. 39)Documentation (Ref: Para. 39)

Documentation (Ref: Para. 39)

1. ASA 315 [71] and ASA 330[72] provide requirements and guidance on documenting the auditor’s understanding of the entity, risk assessments and responses to assessed risks. This guidance is based on the requirements and guidance in ASA 230.[73] In the context of auditing accounting estimates, the auditor is required to prepare audit documentation about key elements of the auditor’s understanding of the entity and its environment related to accounting estimates. In addition, the auditor’s judgements about the assessed risks of material misstatement related to accounting estimates, and the auditor’s responses, may likely be further supported by documentation of communications with those charged with governance and management.
2. In documenting the linkage of the auditor’s further audit procedures with the assessed risks of material misstatement at the assertion level, in accordance with ASA 330, this Auditing Standard requires that the auditor take into account the reasons given to the risks of material misstatement at the assertion level. Those reasons may relate to one or more inherent risk factors or the auditor’s assessment of control risk. However, the auditor is not required to document how every inherent risk factor was taken into account in identifying and assessing the risks of material misstatement in relation to each accounting estimate.
3. The auditor also may consider documenting:

• When management’s application of the method involves complex modelling, whether management’s judgements have been applied consistently and, when applicable, that the design of the model meets the measurement objective of the applicable financial reporting framework.
• When the selection and application of methods, significant assumptions, or the data is affected by complexity to a higher degree, the auditor’s judgements in determining whether specialised skills or knowledge are required to perform the risk assessment procedures, to design and perform procedures responsive to those risks, or to evaluate the audit evidence obtained. In these circumstances, the documentation also may include how the required skills or knowledge were applied.

1. Paragraph A7 of ASA 230 notes that, although there may be no single way in which the auditor’s exercise of professional scepticism is documented, the audit documentation may nevertheless provide evidence of the auditor’s exercise of professional scepticism. For example, in relation to accounting estimates, when the audit evidence obtained includes evidence that both corroborates and contradicts management’s assertions, the documentation may include how the auditor evaluated that evidence, including the professional judgements made in forming a conclusion as to the sufficiency and appropriateness of the audit evidence obtained. Examples of other requirements in this Auditing Standard for which documentation may provide evidence of the exercise of professional scepticism by the auditor include: