Auditing Standard No.

3 
Audit Documentation
Supersedes AU sec. 339, Audit Documentation, and AU sec. 9339, Audit
Documentation: Auditing Interpretations of Section 339
Effective Date: For audits of financial statements, which may include an audit of
internal control over financial reporting, with respect to fiscal years ending on or after
November 15, 2004. For other engagements conducted pursuant to the standards of the
PCAOB, including reviews of interim financial information, this standard takes effect
beginning with the first quarter ending after the first financial statement audit covered
by this standard.
Final Rule: PCAOB Release No. 2004-006
SUMMARY TABLE OF CONTENTS
 (1) Introduction 
 (2 - 3) Objectives of Audit Documentation
 (4 - 9) Audit Documentation Requirement 
 (10 - 13) Documentation of Specific Matters 
 (14 - 20) Retention of and Subsequent Changes to Audit Documentation 
 (21) Effective Date
 Appendix A Background and Basis for Conclusions

INTRODUCTION
1.           This standard establishes general requirements for documentation the auditor
should prepare and retain in connection with engagements conducted pursuant to the
standards of the Public Company Accounting Oversight Board ("PCAOB"). Such
engagements include an audit of financial statements, an audit of internal control over
financial reporting, and a review of interim financial information. This standard does not
replace specific documentation requirements of other standards of the PCAOB.

OBJECTIVES OF AUDIT DOCUMENTATION

2.                 Audit documentation is the written record of the basis for the auditor's conclusions
that provides the support for the auditor's representations, whether those representations
are contained in the auditor's report or otherwise. Audit documentation also facilitates the
planning, performance, and supervision of the engagement, and is the basis for the review
of the quality of the work because it provides the reviewer with written documentation of
the evidence supporting the auditor's significant conclusions. Among other things, audit
documentation includes records of the planning and performance of the work, the
procedures performed, evidence obtained, and conclusions reached by the auditor. Audit
documentation also may be referred to as work papers or working papers .

Note: An auditor's representations to a company's board of directors or audit

committee, stockholders, investors, or other interested parties are usually included in
the auditor's report accompanying the financial statements of the company. The
auditor also might make oral representations to the company or others, either on a
voluntary basis or if necessary to comply with professional standards, including in
connection with an engagement for which an auditor's report is not issued. For
example, although an auditor might not issue a report in connection with an
engagement to review interim financial information, he or she ordinarily would make
oral representations about the results of the review.  

3.        Audit documentation is reviewed by members of the engagement team performing

the work and might be reviewed by others. Reviewers might include, for example:
 a. Auditors who are new to an engagement and review the prior year's
documentation to understand the work performed as an aid in planning and
performing the current engagement.
b. Supervisory personnel who review documentation prepared by assistants on the
engagement.
c. Engagement supervisors and engagement quality reviewers who review
documentation to understand how the engagement team reached significant
conclusions and whether there is adequate evidential support for those
conclusions.
d. A successor auditor who reviews a predecessor auditor's audit documentation.
e. Internal and external inspection teams that review documentation to assess audit
quality and compliance with auditing and related professional practice standards;
applicable laws, rules, and regulations; and the auditor's own quality control
policies.
f. Others, including advisors engaged by the audit committee or representatives of a
party to an acquisition.

AUDIT DOCUMENTATION REQUIREMENT

4.        The auditor must prepare audit documentation in connection with each engagement
conducted pursuant to the standards of the PCAOB. Audit documentation should be
prepared in sufficient detail to provide a clear understanding of its purpose, source, and the
conclusions reached. Also, the documentation should be appropriately organized to provide
a clear link to the significant findings or issues. 1/ Examples of audit documentation include
memoranda, confirmations, correspondence, schedules, audit programs, and letters of
representation. Audit documentation may be in the form of paper, electronic files, or other
media.

5.        Because audit documentation is the written record that provides the support for the
representations in the auditor's report, it should:

a. Demonstrate that the engagement complied with the standards of the PCAOB,
b. Support the basis for the auditor's conclusions concerning every relevant financial
statement assertion, and
c. Demonstrate that the underlying accounting records agreed or reconciled with the
financial statements.

6.        The auditor must document the procedures performed, evidence obtained, and
conclusions reached with respect to relevant financial statement assertions. 2/ Audit
documentation must clearly demonstrate that the work was in fact performed. This
documentation requirement applies to the work of all those who participate in the
engagement as well as to the work of specialists the auditor uses as evidential matter in
evaluating relevant financial statement assertions. Audit documentation must contain
sufficient information to enable an experienced auditor, having no previous connection with
the engagement:

a. To understand the nature, timing, extent, and results of the procedures

performed, evidence obtained, and conclusions reached, and
b. To determine who performed the work and the date such work was completed as
well as the person who reviewed the work and the date of such review.

Note: An experienced auditor has a reasonable understanding of audit activities

and has studied the company's industry as well as the accounting and auditing
issues relevant to the industry.
7.        In determining the nature and extent of the documentation for a financial statement
assertion, the auditor should consider the following factors:

 Nature of the auditing procedure;

 Risk of material misstatement associated with the assertion;
 Extent of judgment required in performing the work and evaluating the results, for
example, accounting estimates require greater judgment and commensurately
more extensive documentation;
 Significance of the evidence obtained to the assertion being tested; and
 Responsibility to document a conclusion not readily determinable from the
documentation of the procedures performed or evidence obtained.

Application of these factors determines whether the nature and extent of audit
documentation is adequate.

8.        In addition to the documentation necessary to support the auditor's final

conclusions, audit documentation must include information the auditor has identified
relating to significant findings or issues that is inconsistent with or contradicts the auditor's
final conclusions. The relevant records to be retained include, but are not limited to,
procedures performed in response to the information, and records documenting
consultations on, or resolutions of, differences in professional judgment among members of
the engagement team or between the engagement team and others consulted.

9.        If, after the documentation completion date (defined in paragraph 15), the auditor
becomes aware, as a result of a lack of documentation or otherwise, that audit procedures
may not have been performed, evidence may not have been obtained, or appropriate
conclusions may not have been reached, the auditor must determine, and if so demonstrate,
that sufficient procedures were performed, sufficient evidence was obtained, and
appropriate conclusions were reached with respect to the relevant financial statement
assertions. To accomplish this, the auditor must have persuasive other evidence. Oral
explanation alone does not constitute persuasive other evidence, but it may be used to
clarify other written evidence. 

 If the auditor determines and demonstrates that sufficient procedures were

performed, sufficient evidence was obtained, and appropriate conclusions were
reached, but that documentation thereof is not adequate, then the auditor should
consider what additional documentation is needed. In preparing additional
documentation, the auditor should refer to paragraph 16.
 If the auditor cannot determine or demonstrate that sufficient procedures were
performed, sufficient evidence was obtained, or appropriate conclusions were
reached, the auditor should comply with the provisions of AU sec. 390,
Consideration of Omitted Procedures After the Report Date .

DOCUMENTATION OF SPECIFIC MATTERS

10.      Documentation of auditing procedures that involve the inspection of documents or
confirmation, including tests of details, tests of operating effectiveness of controls, and
walkthroughs, should include identification of the items inspected. Documentation of
auditing procedures related to the inspection of significant contracts or agreements should
include abstracts or copies of the documents.

Note: The identification of the items inspected may be satisfied by indicating the

source from which the items were selected and the specific selection criteria, for
example:
  If an audit sample is selected from a population of documents, the documentation
should include identifying characteristics (for example, the specific check numbers
of the items included in the sample).
 If all items over a specific dollar amount are selected from a population of
documents, the documentation need describe only the scope and the identification
of the population (for example, all checks over $10,000 from the October
disbursements journal).
 If a systematic sample is selected from a population of documents, the
documentation need only provide an identification of the source of the documents
and an indication of the starting point and the sampling interval (for example, a
systematic sample of sales invoices was selected from the sales journal for the
period from October 1 to December 31, starting with invoice number 452 and
selecting every 40th invoice).

11.      Certain matters, such as auditor independence, staff training and proficiency and
client acceptance and retention, may be documented in a central repository for the public
accounting firm ("firm") or in the particular office participating in the engagement. If such
matters are documented in a central repository, the audit documentation of the engagement
should include a reference to the central repository. Documentation of matters specific to a
particular engagement should be included in the audit documentation of the pertinent
engagement.

12.      The auditor must document significant findings or issues, actions taken to address
them (including additional evidence obtained), and the basis for the conclusions reached in
connection with each engagement.  Significant findings or issues are substantive matters
that are important to the procedures performed, evidence obtained, or conclusions reached,
and include, but are not limited to, the following:

a. Significant matters involving the selection, application, and consistency of

accounting principles, including related disclosures. Significant matters include,
but are not limited to, accounting for complex or unusual transactions, accounting
estimates, and uncertainties as well as related management assumptions.
b. Results of auditing procedures that indicate a need for significant modification of
planned auditing procedures, the existence of material misstatements, omissions
in the financial statements, the existence of significant deficiencies, or material
weaknesses in internal control over financial reporting.
c. Audit adjustments. For purposes of this standard, an audit adjustment is a
correction of a misstatement of the financial statements that was or should have
been proposed by the auditor, whether or not recorded by management, that
could, either individually or when aggregated with other misstatements, have a
material effect on the company's financial statements.
d. Disagreements among members of the engagement team or with others consulted
on the engagement about final conclusions reached on significant accounting or
auditing matters.
e. Circumstances that cause significant difficulty in applying auditing procedures.
f. Significant changes in the assessed level of audit risk for particular audit areas and
the auditor's response to those changes.
g. Any matters that could result in modification of the auditor's report.

13.      The auditor must identify all significant findings or issues in an engagement

completion document . This document may include either all information necessary to
understand the significant findings, issues or cross-references, as appropriate, to other
available supporting audit documentation. This document, along with any documents cross-
referenced, should collectively be as specific as necessary in the circumstances for a
reviewer to gain a thorough understanding of the significant findings or issues. 
 Note: The engagement completion document prepared in connection with the annual
audit should include documentation of significant findings or issues identified during
the review of interim financial information.

RETENTION OF AND SUBSEQUENT CHANGES TO AUDIT

DOCUMENTATION
14.      The auditor must retain audit documentation for seven years from the date the
auditor grants permission to use the auditor's report in connection with the issuance of the
company's financial statements ( report release date ), unless a longer period of time is
required by law. If a report is not issued in connection with an engagement, then the audit
documentation must be retained for seven years from the date that fieldwork was
substantially completed. If the auditor was unable to complete the engagement, then the
audit documentation must be retained for seven years from the date the engagement
ceased.

15.      Prior to the report release date, the auditor must have completed all necessary
auditing procedures and obtained sufficient evidence to support the representations in the
auditor's report. A complete and final set of audit documentation should be assembled for
retention as of a date not more than 45 days after the report release date ( documentation
completion date ). If a report is not issued in connection with an engagement, then the
documentation completion date should not be more than 45 days from the date that
fieldwork was substantially completed. If the auditor was unable to complete the
engagement, then the documentation completion date should not be more than 45 days
from the date the engagement ceased.

16.      Circumstances may require additions to audit documentation after the report release
date. Audit documentation must not be deleted or discarded after the documentation
completion date, however, information may be added. Any documentation added must
indicate the date the information was added, the name of the person who prepared the
additional documentation, and the reason for adding it. 

17.      Other standards require the auditor to perform procedures subsequent to the report
release date in certain circumstances. For example, in accordance with AU sec. 711, Filings
Under Federal Securities Statutes , auditors are required to perform certain procedures up
to the effective date of a registration statement. 3/ The auditor must identify and document
any additions to audit documentation as a result of these procedures consistent with the
previous paragraph.

18.      The office of the firm issuing the auditor's report is responsible for ensuring that all
audit documentation sufficient to meet the requirements of paragraphs 4-13 of this standard
is prepared and retained. Audit documentation supporting the work performed by other
auditors (including auditors associated with other offices of the firm, affiliated firms, or non-
affiliated firms), must be retained by or be accessible to the office issuing the auditor's
report. 4/

19.      In addition, the office issuing the auditor's report must obtain, and review and
retain, prior to the report release date, the following documentation related to the work
performed by other auditors (including auditors associated with other offices of the firm,
affiliated firms, or non-affiliated firms):

a. An engagement completion document consistent with paragraphs 12 and 13.

Note: This engagement completion document should include all cross-referenced,

supporting audit documentation.

b. A list of significant fraud risk factors, the auditor's response, and the results of the
auditor's related procedures.
 c. Sufficient information relating to any significant findings or issues that are
inconsistent with or contradict the final conclusions, as described in paragraph 8.
d. Any findings affecting the consolidating or combining of accounts in the
consolidated financial statements.
e. Sufficient information to enable the office issuing the auditor's report to agree or
to reconcile the financial statement amounts audited by the other auditor to the
information underlying the consolidated financial statements.
f. A schedule of audit adjustments, including a description of the nature and cause of
each misstatement.
g. All significant deficiencies and material weaknesses in internal control over
financial reporting, including a clear distinction between those two categories.
h. Letters of representations from management.
i. All matters to be communicated to the audit committee.

If the auditor decides to make reference in his or her report to the audit of the other
auditor, however, the auditor issuing the report need not perform the procedures in this
paragraph and, instead, should refer to AU sec. 543, Part of Audit Performed by Other
Independent Auditors .

20.      The auditor also might be required to maintain documentation in addition to that

required by this standard. 5/

EFFECTIVE DATE
21.      This standard is effective for audits of financial statements, which may include an
audit of internal control over financial reporting, with respect to fiscal years ending on or
after November 15, 2004. For other engagements conducted pursuant to the standards of
the PCAOB, including reviews of interim financial information, this standard takes effect
beginning with the first quarter ending after the first financial statement audit covered by
this standard.

1/
See paragraph 12 of this standard for a description of significant findings or issues.

[The following footnote is effective for audits of fiscal years ending on or after November 15, 2007. See PCAOB
Release 2007-005A. For audits of fiscal years ending before November 15, 2007, click here.]

2/
Relevant financial statement assertions are described in paragraphs 28-33 of PCAOB
Auditing Standard No. 5, An Audit of Internal Control Over Financial Reporting That Is
Integrated with An Audit of Financial Statements.

3/
Section 11 of the Securities Act of 1933 makes specific mention of the auditor's
responsibility as an expert when the auditor's report is included in a registration
statement under the 1933 Act.

4/
Section 106(b) of the Sarbanes-Oxley Act of 2002 imposes certain requirements
concerning production of the work papers of a foreign public accounting firm on whose
opinion or services the auditor relies. Compliance with this standard does not substitute
for compliance with Section 106(b) or any other applicable law.

5/
For example, the SEC requires auditors to retain, in addition to documentation required
by this standard, memoranda, correspondence, communications (for example, electronic
mail), other documents, and records (in the form of paper, electronic, or other media)
that are created, sent, or received in connection with an engagement conducted in
accordance with auditing and related professional practice standards and that contain
conclusions, opinions, analyses, or data related to the engagement. (Retention of Audit
and Review Records, 17 CFR §210.2-06, effective for audits or reviews completed on or
after October 31, 2003.)
[Effective pursuant to SEC Release No. 34-50253, File No. PCAOB-2004-05 (August 25, 2004)]