Audit Strategy, Audit Planning and Audit Programme - Test 1: answer key

Question 1 · 2 marks · Chapter 2: Audit Strategy, Audit Planning and Audit Programme · medium

Scenario. Zenith Manufacturing Pvt Ltd produces auto components across three plants and two third-party warehouses. For FY 2026-27, M/s Sharma & Associates is appointed statutory auditor after the previous auditor resigned following a disagreement over inventory records. Before accepting, CA Nisha Sharma obtains information on promoter integrity, checks whether the engagement team has competence for the new ERP environment, and sends an engagement letter. During planning, she identifies warehouse inventory and revenue cut-off as high-risk, decides to deploy senior staff and an inventory expert, plans physical count observation at two material locations, and schedules a team briefing. She also considers the changed credit policy and new ERP reports. A junior assistant prepares the audit programme using last year's manual-purchase checklist, which omits warehouse goods and IT general controls. Later, a warehouse discrepancy emerges and management refuses access to system logs. CA Nisha remarks that once fieldwork begins the audit plan cannot be revised and instructs the assistant to continue the same programme. Management also pressures the team to complete fieldwork before a bank covenant deadline. The assistant asks which matters fall under preliminary engagement activities, overall strategy, detailed plan or documentation. The company has inventory of Rs 18 crore at warehouses, and the ERP migration happened on 1 October 2026. The engagement partner documents her decisions in the audit file but is unsure whether the unchanged programme and the refusal of logs need to be recorded.

In the appointment of M/s Sharma & Associates for Zenith Manufacturing Pvt Ltd, which matter is a preliminary engagement activity under SA 300?

1. Determining materiality for the financial statements as a whole and selecting benchmarks.
2. Evaluating independence and establishing an understanding of the terms of engagement. (correct answer)
3. Designing risk assessment procedures and further audit procedures at assertion level.
4. Documenting significant changes to the audit plan and the reasons for such changes.

Answer: B — Evaluating independence and establishing an understanding of the terms of engagement.

Explanation. SA 300 requires preliminary engagement activities covering continuance of client relationships, compliance with ethical requirements including independence, and establishing an understanding of engagement terms. Materiality and risk assessment procedures belong to planning activities, while documentation of changes arises after planning decisions are revised. Option b correctly identifies the preliminary engagement activity in the facts.

Where it goes wrong. Students often treat materiality determination as part of client acceptance because it is done early, but it is a planning activity, not a preliminary engagement activity.

Authority. SA 300

Question 2 · 2 marks · Chapter 2: Audit Strategy, Audit Planning and Audit Programme · hard

CA Nisha decides to deploy senior staff and an inventory expert to high-risk warehouse locations and to schedule review meetings. This decision is most directly an example of:

1. Establishing overall audit strategy by determining resources, their deployment and supervision. (correct answer)
2. Preparing a detailed audit programme listing each voucher to be checked.
3. Performing preliminary engagement activities before accepting the audit.
4. Documenting audit evidence obtained from physical inventory observation.

Answer: A — Establishing overall audit strategy by determining resources, their deployment and supervision.

Explanation. SA 300 states that establishing overall audit strategy assists the auditor in determining resources to deploy for specific audit areas, the amount of resources, when they are deployed, and how they are managed, directed and supervised. Selecting staff and experts for high-risk areas is therefore strategy-level resource planning, not a detailed programme step or a preliminary engagement activity.

Where it goes wrong. Students may select audit programme because staff assignments appear operational, but SA 300 places resource deployment and supervision at overall strategy level.

Authority. SA 300

Question 3 · 2 marks · Chapter 2: Audit Strategy, Audit Planning and Audit Programme · medium

CA Nisha states that once fieldwork begins the audit plan cannot be revised. How should this statement be evaluated under SA 300?

1. Correct, because an approved audit plan is binding until the auditor's report is issued.
2. Correct, if management agrees in writing that no further revision is required.
3. Incorrect, because the auditor shall update and change strategy and plan for unexpected events, conditions or audit evidence. (correct answer)
4. Incorrect, but revision is permitted only after withdrawing from the engagement and reappointing the firm.

Answer: C — Incorrect, because the auditor shall update and change strategy and plan for unexpected events, conditions or audit evidence.

Explanation. SA 300 treats planning as continuous and iterative. The auditor shall update and change the overall audit strategy and audit plan as necessary during the audit, particularly when unexpected events, changed conditions or audit evidence differ significantly from information available at planning. Withdrawal is not a condition for revising the plan. The partner's rigid view is therefore incorrect.

Where it goes wrong. A common mistake is to equate approval of the plan with immutability; SA 300 expressly requires revision when circumstances change.

Authority. SA 300

Question 4 · 2 marks · Chapter 2: Audit Strategy, Audit Planning and Audit Programme · hard

If CA Nisha revises the strategy and plan because of the warehouse discrepancy and management's refusal to provide system logs, what must be documented under SA 300?

1. Only the final audit report and the management representation letter.
2. Only the audit programme signed by the assistants who performed the work.
3. Only significant changes; the original strategy and plan need not be recorded.
4. The overall strategy, the audit plan, and significant changes with reasons for such changes. (correct answer)

Answer: D — The overall strategy, the audit plan, and significant changes with reasons for such changes.

Explanation. SA 300 requires documentation of the overall audit strategy, the audit plan, and any significant changes made during the engagement to the strategy or plan, including the reasons for those changes. Documenting only the report or programme is insufficient. The record explains why revisions were made and reflects the final strategy and plan adopted.

Where it goes wrong. Students may think only the audit programme is documented; SA 300 separately requires documentation of strategy, plan and significant changes.

Authority. SA 300

Question 5 · 2 marks · Chapter 2: Audit Strategy, Audit Planning and Audit Programme · medium

Scenario. Alpha Infotech Ltd, a listed company with complex cloud-service contracts, is examined under statutory audit by M/s V. Raman & LLP for FY 2026-27. At the planning meeting, engagement partner CA Raman and manager CA Iyer decide to involve a forensic expert for revenue recognition, assign experienced staff to contract accounting, and set materiality after considering profit before tax and total revenue. They document the overall strategy and detailed plan. A newly joined assistant, CA Dev, is asked to prepare the audit programme; he copies the prior-year programme without considering new contract terms. Management asks for a copy of the detailed programme and sampling sizes before fieldwork, saying it will help coordinate schedules. CA Raman is willing to discuss some planning elements but not to compromise audit effectiveness. After planning, the team learns that a major customer has disputed Rs 4 crore of invoices. CA Raman says the approved plan should not be changed because the team is already in the field. The company also has a proposed overseas subsidiary, and the team must decide whether to use component auditors. CA Dev questions why the engagement partner should discuss the plan with senior team members and whether the client can be given the complete programme. The audit file currently records only the original strategy and not the subsequent dispute. The board meeting is scheduled in six weeks.

CA Dev questions why CA Raman, the engagement partner, should discuss the audit plan with senior team members. What is the correct position under SA 300?

1. Discussion is optional and only useful for trainees; it has no effect on audit effectiveness.
2. The engagement partner and key team members shall be involved in planning, drawing on their experience and insight. (correct answer)
3. Discussion is prohibited before the client approves the detailed audit programme.
4. Only the quality control reviewer may discuss planning matters with the engagement team.

Answer: B — The engagement partner and key team members shall be involved in planning, drawing on their experience and insight.

Explanation. SA 300 requires the engagement partner and other key members of the engagement team to be involved in planning the audit, including participating in discussion among team members. Their involvement draws on experience and insight and enhances the effectiveness and efficiency of planning. It is not optional, nor is client approval a precondition.

Where it goes wrong. Students may treat planning as a partner-only exercise; SA 300 mandates involvement of key engagement team members.

Authority. SA 300

Question 6 · 2 marks · Chapter 2: Audit Strategy, Audit Planning and Audit Programme · hard

Management asks for the complete detailed audit programme and sampling sizes before fieldwork. How should CA Raman respond under SA 300?

1. Provide the complete programme because SA 300 requires client approval of all audit procedures.
2. Refuse all discussion with management because any communication compromises audit effectiveness.
3. May discuss elements of planning with management to facilitate conduct, taking care not to compromise audit effectiveness. (correct answer)
4. Provide only the audit strategy and not the audit plan, since the plan is confidential in all cases.

Answer: C — May discuss elements of planning with management to facilitate conduct, taking care not to compromise audit effectiveness.

Explanation. SA 300 permits the auditor to discuss elements of planning with management to facilitate the conduct and management of the audit engagement. However, care is required not to compromise the effectiveness of the audit. There is no blanket prohibition on discussion, nor is client approval of the detailed programme required.

Where it goes wrong. Students often think any sharing with management destroys the surprise element, but SA 300 allows limited discussion with safeguards.

Authority. SA 300

Question 7 · 2 marks · Chapter 2: Audit Strategy, Audit Planning and Audit Programme · medium

After planning, the team learns of a disputed Rs 4 crore customer invoice. CA Raman refuses to change the approved plan because the team is already in the field. Is this correct?

1. No; the auditor shall update strategy and plan when new information differs significantly from that available at planning. (correct answer)
2. Yes; an audit plan approved before fieldwork cannot be altered except with client consent.
3. Yes; disputed invoices are always a matter for legal counsel and never affect audit planning.
4. No; the auditor must withdraw from the engagement whenever a customer dispute arises.

Answer: A — No; the auditor shall update strategy and plan when new information differs significantly from that available at planning.

Explanation. SA 300 requires the auditor to update and change the overall audit strategy and audit plan as necessary. New information about a material customer dispute differs significantly from information available at planning and may require revised risk assessment and further procedures. Withdrawal is not automatic, and client consent is not the test.

Where it goes wrong. Students may confuse revision of the plan with a change in engagement terms; SA 300 requires revision during the audit without renegotiating the engagement.

Authority. SA 300

Question 8 · 2 marks · Chapter 2: Audit Strategy, Audit Planning and Audit Programme · hard

Which decision in the Alpha Infotech audit is most clearly part of establishing the overall audit strategy rather than the detailed audit plan?

1. Selecting the precise customer confirmations to be sent for the largest receivables.
2. Vouching every journal entry above Rs 1 lakh relating to revenue.
3. Deciding the precise sample size for testing cloud-contract approvals.
4. Considering use of a forensic expert and experienced staff for complex revenue contracts. (correct answer)

Answer: D — Considering use of a forensic expert and experienced staff for complex revenue contracts.

Explanation. SA 300 indicates that overall audit strategy sets scope, timing and direction and includes determining the nature, timing and extent of resources necessary for the engagement. Deciding to involve a forensic expert and experienced staff for complex revenue contracts is resource deployment. precise confirmations, vouching and sample sizes are detailed audit plan or programme matters.

Where it goes wrong. Students may treat expert involvement as a procedural detail; SA 300 places resource decisions such as expert involvement within overall strategy.

Authority. SA 300

Question 9 · 2 marks · Chapter 2: Audit Strategy, Audit Planning and Audit Programme · medium

Scenario. Which statement about the nature of audit planning is correct under SA 300?

Which statement about the nature of audit planning is correct under SA 300?

1. Planning is a discrete phase completed before risk assessment procedures begin.
2. Planning is continual and iterative, often beginning after the previous audit and continuing until completion of the current audit. (correct answer)
3. Planning ends once the engagement letter is signed by the client.
4. Planning is required only for listed entities and banks.

Answer: B — Planning is continual and iterative, often beginning after the previous audit and continuing until completion of the current audit.

Explanation. SA 300 states that planning is not a discrete phase but a continual and iterative process that often begins shortly after or in connection with completion of the previous audit and continues until completion of the current engagement. It includes consideration of activities that must be completed before further procedures. It applies to audits generally, not only listed entities.

Where it goes wrong. The common trap is to treat planning as a one-time phase before fieldwork; SA 300 treats it as continuous throughout the engagement.

Authority. SA 300

Question 10 · 2 marks · Chapter 2: Audit Strategy, Audit Planning and Audit Programme · hard

Scenario. Which of the following is included in preliminary engagement activities under SA 300?

Which of the following is included in preliminary engagement activities under SA 300?

1. Determining materiality and assessing risks of material misstatement.
2. Designing further audit procedures at the assertion level.
3. Evaluating compliance with ethical requirements including independence and establishing terms of engagement. (correct answer)
4. Documenting significant changes to the audit plan and the reasons for those changes.

Answer: C — Evaluating compliance with ethical requirements including independence and establishing terms of engagement.

Explanation. Preliminary engagement activities include procedures regarding continuance of client relationships and audit engagements, evaluating compliance with ethical requirements including independence, and establishing an understanding of the terms of engagement. Materiality, risk assessment and further procedures are planning activities. Documentation of changes arises after planning revisions.

Where it goes wrong. Students often include materiality in preliminary activities because it is considered early; SA 300 categorises it under planning activities.

Authority. SA 300

Question 11 · 2 marks · Chapter 2: Audit Strategy, Audit Planning and Audit Programme · medium

Scenario. Establishing the overall audit strategy assists the auditor to determine which of the following?

Establishing the overall audit strategy assists the auditor to determine which of the following?

1. Resources to deploy, amount of resources, timing of deployment and how they are managed and supervised. (correct answer)
2. Every invoice to be vouched and the precise sampling interval for each account balance.
3. The detailed audit programme for each assertion and each team member's daily tasks.
4. The written representations to be obtained from management and those charged with governance.

Answer: A — Resources to deploy, amount of resources, timing of deployment and how they are managed and supervised.

Explanation. SA 300 states that establishing overall audit strategy assists the auditor in determining resources to deploy for specific audit areas, the amount of resources, when they are to be deployed, and how such resources are managed, directed and supervised. Detailed vouching, sampling intervals and daily tasks belong to the audit plan or programme, not strategy.

Where it goes wrong. Students may select detailed programme matters because they appear practical, but SA 300 links strategy to resource deployment and direction.

Authority. SA 300

Question 12 · 2 marks · Chapter 2: Audit Strategy, Audit Planning and Audit Programme · hard

Scenario. Which matter is least likely to be included in the detailed audit plan as described by SA 300?

Which matter is least likely to be included in the detailed audit plan as described by SA 300?

1. Nature, timing and extent of planned risk assessment procedures.
2. Nature, timing and extent of planned further audit procedures at assertion level.
3. Other planned audit procedures required so that the engagement complies with SAs.
4. Overall reporting objectives, scope of engagement and broad direction of the audit. (correct answer)

Answer: D — Overall reporting objectives, scope of engagement and broad direction of the audit.

Explanation. SA 300 requires the audit plan to include the nature, timing and extent of planned risk assessment procedures, planned further audit procedures at assertion level, and other planned procedures required for compliance with SAs. Overall reporting objectives, scope and broad direction are elements of the overall audit strategy, which guides development of the more detailed audit plan.

Where it goes wrong. Students often reverse strategy and plan; scope and reporting objectives belong to strategy, while detailed procedures belong to the plan.

Authority. SA 300

Question 13 · 2 marks · Chapter 2: Audit Strategy, Audit Planning and Audit Programme · medium

Scenario. An audit programme prepared three years ago is still being used after the client changed its business model and internal controls. What does SA 300 and the study material require?

An audit programme prepared three years ago is still being used after the client changed its business model and internal controls. What does SA 300 and the study material require?

1. The programme should never be altered once approved by the engagement partner.
2. The programme should be periodically reviewed and updated for changes in business operations and internal controls. (correct answer)
3. Only assistants may change the programme, without informing the engagement partner.
4. A standard programme applicable to all clients should replace the old programme.

Answer: B — The programme should be periodically reviewed and updated for changes in business operations and internal controls.

Explanation. The study material requires periodic review of the audit programme to assess whether it remains adequate for obtaining requisite knowledge and evidence. Changes in the client's business policy or internal control may make the programme obsolete. Continuing an outdated programme can amount to negligence. A single standard programme for all businesses is not practicable.

Where it goes wrong. Students may think the programme's approval makes it permanent; periodic review is essential and the programme must be updated.

Authority. SA 300

Question 14 · 2 marks · Chapter 2: Audit Strategy, Audit Planning and Audit Programme · hard

Scenario. An assistant notices unusual cancelled e-way bills not covered by the audit programme. What is the most appropriate action?

An assistant notices unusual cancelled e-way bills not covered by the audit programme. What is the most appropriate action?

1. Ignore the matter because the audit programme contains no instruction on e-way bill cancellations.
2. Alter the approved programme independently and continue without informing anyone.
3. Note and report the significant matter to the senior or engagement partner for guidance and possible revision of the programme. (correct answer)
4. Immediately conclude that fraud exists and issue a qualified audit opinion.

Answer: C — Note and report the significant matter to the senior or engagement partner for guidance and possible revision of the programme.

Explanation. The study material encourages assistants to keep an open mind beyond the programme and to report significant matters coming to their notice to seniors or the engagement partner. The assistant should not ignore the matter, nor unilaterally alter the approved programme, nor conclude fraud without further procedures. Reporting enables appropriate revision and investigation.

Where it goes wrong. Students may think the programme is exhaustive; assistants must report matters outside the programme.

Authority. SA 300; SA 320

Question 15 · 2 marks · Chapter 2: Audit Strategy, Audit Planning and Audit Programme · medium

Scenario. Which of the following is not an advantage of a written audit programme?

Which of the following is not an advantage of a written audit programme?

1. It eliminates the need for supervision and professional judgment by the engagement partner. (correct answer)
2. It provides assistants with clear instructions about work generally to be done.
3. It fixes responsibility through sign-off and serves as a guide for future audits.
4. It can serve as evidence of reasonable skill and care in a negligence claim.

Answer: A — It eliminates the need for supervision and professional judgment by the engagement partner.

Explanation. A written audit programme provides instructions, fixes responsibility, assists control and future audits, and can support defence against negligence allegations. It does not eliminate supervision or professional judgment; disadvantages such as mechanical application and rigidity must be addressed through imaginative supervision. Option a is therefore not an advantage.

Where it goes wrong. Students may overstate the programme's role and forget that supervision and professional judgment remain essential.

Authority. SA 300; SA 320

Question 16 · 2 marks · Chapter 2: Audit Strategy, Audit Planning and Audit Programme · hard

Scenario. Which statement correctly describes the relationship between overall audit strategy and audit plan under SA 300?

Which statement correctly describes the relationship between overall audit strategy and audit plan under SA 300?

1. The strategy is more detailed than the plan and includes specific vouching steps for each transaction.
2. The plan sets scope and direction, while the strategy lists detailed audit procedures for assistants.
3. The two are always sequential and cannot affect each other once the strategy is approved.
4. They are closely interrelated; changes in one may result in consequential changes to the other. (correct answer)

Answer: D — They are closely interrelated; changes in one may result in consequential changes to the other.

Explanation. SA 300 states that establishment of the overall audit strategy and the detailed audit plan are not necessarily discrete or sequential processes but are closely interrelated, since changes in one may result in consequential changes to the other. The plan is more detailed than the strategy. Scope and direction are strategy matters, not plan matters.

Where it goes wrong. Students often treat strategy and plan as strictly sequential; SA 300 emphasises their interrelationship and possible consequential changes.

Authority. SA 300

Question 17 · 2 marks · Chapter 2: Audit Strategy, Audit Planning and Audit Programme · medium

Scenario. The nature, timing and extent of direction, supervision and review of engagement team members vary with which factors?

The nature, timing and extent of direction, supervision and review of engagement team members vary with which factors?

1. Only the audit fee budget and the client's effective tax rate.
2. Size and complexity of the entity, area of audit, assessed risks and capabilities of team members. (correct answer)
3. Only whether the client is listed and the number of branches.
4. Only the engagement partner's seniority and the office location.

Answer: B — Size and complexity of the entity, area of audit, assessed risks and capabilities of team members.

Explanation. SA 300 requires the auditor to plan the nature, timing and extent of direction and supervision of engagement team members and review of their work. The study material identifies factors such as size and complexity of the entity, area of the audit, assessed risks of material misstatement, and capabilities and competence of individual team members. Fee budget and tax rate are not the specified drivers.

Where it goes wrong. Students may focus only on entity size; SA 300 also considers area, risk and team competence.

Authority. SA 300

Question 18 · 2 marks · Chapter 2: Audit Strategy, Audit Planning and Audit Programme · hard

Scenario. Sending an audit engagement letter before commencement of the audit is most suitable described as:

Sending an audit engagement letter before commencement of the audit is most suitable described as:

1. A strategy-level decision to determine materiality for the financial statements.
2. An audit plan procedure for assessing risks of material misstatement.
3. A preliminary engagement activity to establish understanding of terms and avoid misunderstandings. (correct answer)
4. An audit programme step for vouching income and receivables.

Answer: C — A preliminary engagement activity to establish understanding of terms and avoid misunderstandings.

Explanation. Establishing an understanding of the terms of engagement is a preliminary engagement activity. The engagement letter helps avoid misunderstandings regarding the audit and is in the interests of both the entity and the auditor. Materiality, risk assessment and vouching are planning or programme matters, not the purpose of the engagement letter.

Where it goes wrong. Students may classify the engagement letter as documentation of the audit plan; it is part of preliminary engagement activities.

Authority. SA 300; SA 320

Question 19 · 2 marks · Chapter 2: Audit Strategy, Audit Planning and Audit Programme · medium

Scenario. What is the engagement partner required to do regarding compliance with independence requirements during the audit engagement?

What is the engagement partner required to do regarding compliance with independence requirements during the audit engagement?

1. Remain alert, obtain relevant information, evaluate breaches and take action or withdraw where permitted. (correct answer)
2. Rely solely on the client's written confirmation that the firm is independent.
3. Review independence only at the firm's annual training programme.
4. Ignore independence issues unless the auditor's report is challenged by regulators.

Answer: A — Remain alert, obtain relevant information, evaluate breaches and take action or withdraw where permitted.

Explanation. SA 300 and ethical requirements oblige the engagement partner to remain alert for evidence of non-compliance with ethical requirements, obtain relevant information from the firm, evaluate identified breaches, and take appropriate action to eliminate threats or reduce them to an acceptable level, including withdrawal where permitted. Client confirmation and annual training alone are insufficient.

Where it goes wrong. Students may treat independence as a one-time acceptance issue; it must be continuously evaluated throughout the engagement.

Authority. SA 300

Question 20 · 2 marks · Chapter 2: Audit Strategy, Audit Planning and Audit Programme · hard

Scenario. Which factor is most relevant to establishing overall audit strategy rather than preparing the audit programme?

Which factor is most relevant to establishing overall audit strategy rather than preparing the audit programme?

1. The precise sequence in which sales invoices will be vouched by an assistant.
2. The daily lunch schedule of the engagement team at the client's office.
3. The detailed sampling plan for testing trade payables balances.
4. Significant industry developments, changes in financial reporting framework and legal environment. (correct answer)

Answer: D — Significant industry developments, changes in financial reporting framework and legal environment.

Explanation. SA 300 requires the auditor, while establishing overall audit strategy, to consider factors significant in directing the engagement team's efforts, including significant industry developments, changes in financial reporting framework and changes in the legal environment. precise vouching sequence, daily schedules and detailed sampling plans are operational programme or plan matters.

Where it goes wrong. Students may select sampling plans because they are important, but detailed sampling belongs to the plan/programme, not overall strategy.

Authority. SA 300