APB issues revised guidance on smaller entity audit documentation

The Auditing Practices Board (APB) has updated Practice Note 26 which provides guidance and illustrative examples on how the documentation requirements contained within ISAs (UK and Ireland) can be applied to smaller entity audits.

Following a consultation launched earlier in 2009, Practice Note 26 ‘Guidance on Smaller Entity Audit Documentation’ has been revised to reflect the requirements of the Clarified auditing standards which will be applicable for accounting periods ending on or after 15 December 2010.

The updates made to Practice Notes 26 leave the overall structure of the guidance and the special considerations about the documentation of a smaller entity audit largely unchanged from the previous version. The illustrative examples have been updated for references to the new Clarified standards and new examples have been included where deemed necessary to reflect the changes in the ISAs (UK and Ireland) that impact on audit documentation.

The main changes affecting audit documentation are included in

  • ISA 320 (UK and Ireland): Materiality in Planning and Performing an Audit;
  • ISA 450 (UK and Ireland): Evaluation of Misstatements Identified During the Audit;
  • ISA 540 (UK and Ireland): Auditing Accounting Estimates, including Fair Value Accounting Estimates and Related Disclosures;
  • ISA 600 (UK and Ireland): Special Considerations – Audits of Group Financial Statements (Including the Work of Component Auditors).

The new examples which have been included in Practice Note 26 to reflect the documentation requirements of the ISAs listed above are:

  • Examples 1 and 2 illustrate different approaches to the documentation of audit strategy and both include information on materiality.
  • Examples 10 and 11 illustrate the level of detail that might be included in working papers on a property valuation and on the assessment of going concern. While going concern is not an area where the documentation requirements have changed, it is an area of focus for auditors at the current time given the economic conditions that exist.
  • Example 12 illustrates how misstatements might be evaluated, either as a section of a completion memorandum or as a separate working paper.
  • Example 13 illustrates how the audit approach to different subsidiaries within a group of companies might be set out within a planning memorandum.