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1143 Documenting significant matters and related significant professional judgments
Jun-2018

Overview

This section explains how to

  • document a significant matter,
  • document information that is inconsistent with conclusions, and
  • document the review of significant matters.

CPA Canada Assurance Standards

Office

Annual Audit

Performance Audit, Special Examination, and Other Assurance Engagements

CAS 230.8 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)

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

(b) The results of the audit procedures performed, and the audit evidence obtained; and

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

Documentation of Significant Matters and Related Significant Professional Judgments (Ref: Para. 8(c))

CAS 230.A9 An important factor in determining the form, content and extent of audit documentation of significant matters is the extent of professional judgment exercised in performing the work and evaluating the results. Documentation of the professional judgments made, where significant, serves to explain the auditor’s conclusions and to reinforce the quality of the judgment. 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).

CAS 230.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 judgment include, where the matters and judgments are significant:

  • The rationale for the auditor’s conclusion when a requirement provides that the auditor ’shall consider’ certain information or factors, and that consideration is significant in the context of the particular engagement.

  • The basis for the auditor’s conclusion on the reasonableness of areas of subjective judgments made by management.

  • The basis for the auditor's evaluation of whether an accounting estimate and related disclosures are reasonable in the context of the applicable financial reporting framework, or are misstated.

  • The basis for the auditor’s conclusions about the authenticity of a document when further investigation (such as making appropriate use of an expert or of confirmation procedures) is undertaken in response to conditions identified during the audit that caused the auditor to believe that the document may not be authentic.

  • When CAS 701 applies, the auditor’s determination of the key audit matters or the determination that there are no key audit matters to be communicated.

CAS 230.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 CAS objective that the auditor cannot achieve that would prevent the auditor from achieving the overall objectives of the auditor.

CAS 230.11 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)

Documentation of How Inconsistencies Have Been Addressed (Ref: Para. 11)

CAS 230.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.

Documentation

CSAE 3001.82 The practitioner shall prepare on a timely basis engagement documentation that provides a record of the basis for the assurance report that is sufficient and appropriate to enable an experienced practitioner, having no previous connection with the engagement, to understand: (Ref: Para. A198-A202)

(c) Significant matters arising during the engagement, the conclusions reached thereon, and significant professional judgments made in reaching those conclusions.

CSAE 3001.83 If the practitioner identifies information that is inconsistent with the practitioner’s final conclusion regarding a significant matter, the practitioner shall document how the practitioner addressed the inconsistency.

Documentation (Ref: Para. 82–86)

CSAE 3001.A198 Documentation includes a record of the practitioner’s reasoning on all significant matters that require the exercise of professional judgment, and related conclusions. When difficult questions of principle or professional judgment exist, documentation that includes the relevant facts that were known by the practitioner at the time the conclusion was reached may assist in demonstrating the practitioner’s knowledge.

CSAE 3001.A199 It is neither necessary nor practical to document every matter considered, or professional judgment made, during an engagement. Further, it is unnecessary for the practitioner to document separately (as in a checklist, for example) compliance with matters for which compliance is demonstrated by documents included within the engagement file. Similarly, the practitioner need not include in the engagement file superseded drafts of working papers, notes that reflect incomplete or preliminary thinking, previous copies of documents corrected for typographical or other errors, and duplicates of documents.

CSAE 3001.A200 In applying professional judgment to assessing the extent of documentation to be prepared and retained, the practitioner may consider what is necessary to provide an understanding of the work performed and the basis of the principal decisions taken (but not the detailed aspects of the engagement) to another practitioner who has no previous experience with the engagement. That other practitioner may only be able to obtain an understanding of detailed aspects of the engagement by discussing them with the practitioner who prepared the documentation.

CSAE 3001.A201 Documentation may include a record of, for example:

  • The identifying characteristics of the specific items or matters tested;

  • Who performed the engagement work and the date such work was completed;

  • Who reviewed the engagement work performed and the date and extent of such review; and

  • Discussions of significant matters with the appropriate party(ies) and others, including the nature of the significant matters discussed and when and with whom the discussions took place.

OAG Policy

Significant matters arising during the audit, the conclusions reached thereon, and significant professional judgments made in reaching those conclusions shall be documented. [Nov-2011]

The engagement leader shall ensure all significant matters have been identified and documented appropriately and the matters have been adequately resolved and reviewed on or before the date of the assurance engagement report. This shall include how the auditor addressed any inconsistency identified with the auditor’s final conclusion regarding significant matters. [Nov-2011]

OAG Guidance

The concept of significant matters is recognized in other Canadian assurance standards, most notably in Canadian Standard on Assurance Engagements (CSAE) 3001 Direct Engagements, as an area of focus in Review and Engagement Quality Control Review. CAS 230—Audit Documentation has been referred to for the principles and guidance on documenting significant matters and related significant professional judgments for all assurance engagements conducted by the Office. CAS 230 replaced the previous Handbook Section 5145—Documentation. The requirements and application guidance found in CAS may be viewed by clicking the “more” feature displayed in the standards information above.

Documenting a significant matter

Audit teams include the following in the documentation to the extent applicable:

  • description of the matter;

  • background facts and circumstances;

  • evidence obtained, including supporting and opposing evidence, and links to other more detailed documentation on file as appropriate;

  • technical references and analysis, including any implication(s);

  • results of consultations with others (as agreed with those consulted) and, if applicable, any significant alternative views or positions that were discussed and the rationale for rejecting them (OAG Audit 3081 Consultations);

  • record of discussion with management and others, including when and with whom the matter was discussed (OAG Audit 1142 and OAG Audit 1112 provide further guidance on documentation and retention of substantive communications);

  • final conclusions reached, the basis for them, and significant professional judgments made in reaching the conclusions, including how the team has addressed any significant information or evidence obtained that contradicts or is inconsistent with the final conclusion (Documenting information inconsistent with conclusions below provides further guidance); and

  • review by the engagement leader, and quality reviewer (if appointed) before the date of the assurance engagement report.

Where a consultation has occurred, the documentation of that consultation will contribute to the required significant matter documentation (OAG Audit 3081 Consultations).

The team may provide evidence of consultation on significant matters by recording the matters discussed and conclusions in the audit file by using the template (preferred option) or by copying into the file some documentation prepared by the party consulted. The Office would ordinarily exclude from audit documentation notes that reflect incomplete or preliminary thinking and previous copies of documents corrected for typographical or other errors.

When determining the nature and extent of the documentation needed for a significant matter, teams consider the general guidance contained in OAG Audit 1141. By their very nature, significant matters will generally require more robust documentation than matters of less significance, both to support the auditors’ work and to enable effective review and supervision. Teams must pay particular attention to the need to retain copies of entity documents and files related to significant matters (e.g., cash flow projections in going concern situations). If there is uncertainty as to the need for more documentation with regard to a significant matter, it is generally better to be conservative and include the documentation in question. Discussion within the team of the nature and extent of significant matter documentation helps determine an effective and efficient approach.

Documenting information inconsistent with conclusions

Teams should not exclude from the documentation information that is inconsistent with final conclusions. Information that was preliminary, inaccurate, or that has been superseded is not considered inconsistent.

Review of significant matters

Before the assurance engagement report is dated, the engagement leader reviews all significant matters. The engagement leader reviews the matters to be satisfied that

  • sufficient appropriate evidence has been obtained,
  • appropriate discussions have been held,
  • conclusions reached are consistent with the work done, and
  • the audit report is appropriate and can be dated.

CAS 230—Audit Documentation and CSAE 3001—Direct Engagements allows changes that are administrative in nature to be made to the documentation after the report issue date. This may include the completion of the documentation of evidence relating to a significant matter, as long as the evidence was obtained, discussed, and agreed before the report was issued. OAG Audit 1171 provides further guidance on documenting evidence after the audit report date.

Related Sections

OAG Audit 1112 Entity documentation and electronic (including email) audit evidence
OAG Audit 1141 Identifying significant matters
OAG Audit 1142 Evaluating, resolving, and communicating significant matters
OAG Audit 1161 Documenting evidence of the extent of review
OAG Audit 1171 Assembly of the final audit file
OAG Audit 3081 Consultations