Audit documentation of the external audit planning process by selected accountancy firms in Malta : an evaluation

Abstract

As a result of the recent corporate failures which have had, and are still having a profound effect on the auditing profession, audit documentation, which is the record of audit procedures performed, relevant audit evidence obtained, and conclusions the auditor reached throughout an audit of financial statements, has acquired a greater importance. By means of personal in-depth semi-structured interviews, this dissertation aims to evaluate audit documentation, with an emphasis on documentation relating to the external audit planning process, produced by selected accountancy firms in Malta. This study concludes that the most important reasons for which audit documentation is prepared are to provide a record of the basis for the auditor's report and to comply with ISAs and other legal and regulatory requirements. It is foreseen that documentation will acquire even more prominence in the near future when practitioners will become subject to mandatory external quality assurance reviews and public oversight. Additionally, this dissertation concludes that the majority of the selected firms record elements relating to the planning process but certain planning sub-processes, as defined in this study, are not recorded at all by a number of firms. Many key matters which will necessitate documentation in future audits governed by the recently revised ISAs are recorded in many instances by most firms. However, the majority of the selected audit firms are still not entirely in line with what will now be the effective documentation requirements. The preparation of planning process workpapers, especially in the case of Big-Four firms, entails a larger extent of delegation when compared to the review of such workpapers. Narratives and matrices are the forms of documentation which are most extensively employed in the recording of the planning process. This study also indicates that Big-Four firms adopt a more standardized approach and use electronic workpapers to a larger extent when compared to their smaller counterparts. The ever-increasing documentation requirements, including those related to planning process workpapers, are in turn augmenting the audit work load. In this context, if audits, particularly those of micro companies, are to remain financially viable, auditors may need to improve the efficiency with which they produce audit documentation. The employment of more efficient documentation methods coupled with the possible positive effect of quality assurance reviews in terms of the latter instilling public and client confidence in the audit profession, may lead to audits being financially sustainable to the audit firm whilst being value adding to the client.