QS Study

Audit Documentation of Understanding

Audit documentation should be prepared in sufficient detail to provide a clear understanding of its purpose, source, and the conclusions reached. Documentations in the working papers may take the form of completed questionnaires, flowcharts, decision tables, and narrative memoranda.

Documentation of understanding: three commonly used methods of documenting the understanding of internal control are narratives, Flowchart, and internal control question arise

Narrative: A narrative is a written description of a internal control, a proper narrative of an accounting system and related controls include four characteristic –

  • The origin of every document and record in the system.
  • All processing that takes place.
  • The disposition of every document and record in the system.
  • An indication of the controls relevant to the assessment of the controls relevant to the assessment of control risk.

Flowchart: An internal control flowchart is a system, of symbolic, diagrammatic, representation of the client’s documents and their sequential flow in the organization. An adequate flowchart includes some four characteristics identified for narratives.

Internal control Questionnaire: An internal control questionnaire asks a set of questions about controls in each audit area as a means of indicating to the auditor aspects of internal control that may be inadequate. In most instances, it is designed to require a ‘yes’ or ‘no’ response, with no responses indicating potential control deficiency.