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File review weaknesses

Tackling the most common file review weaknesses can improve audit quality and efficiency, says Jeremy Williams.

Undergoing hot and cold audit file reviews remains a key mechanism for firms to gauge their performance on audits. Although each audit will present a unique combination of issues, there are common themes that emerge in reviews (particularly of small-to-medium entity audits). Here are 10 such common weaknesses that firms need to isolate and address in order to improve audit quality and, in many cases, audit efficiency too.

Not recording judgement

A perennial issue raised by file reviewers is that audit files lack evidence of the auditor’s judgement. It’s relatively easy to make sure each sales order in a sample is documented; it’s harder to record conclusions where the answers are not clear-cut, but it’s even more important to do so, as such areas are likely the most critical to the audit opinion. Examples of areas that frequently lack recorded judgement include:

  • whether ethical threats are significant and whether safeguards are adequate;
  • the completeness of provisions for slow-moving stock or outstanding debtors;
  • and the valuation of major assets (such as investment properties) carried at fair value.

While the documenting of audit evidence is primarily to assist the audit team rather than for other parties, team members should make sure that, where judgements are significant, the file demonstrates to a reviewer how the final conclusions were reached, including consultation where necessary.

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