Audit Strategy, Audit Planning and Audit Programme - Test 2: answer key

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

Scenario. M/s K. Mehta & Co. has been the statutory auditor of Suryodaya Sugar Mills Ltd for four years. During FY 2026-27, the company diversified into ethanol blending, installed a new ERP module, and changed its inventory valuation method from FIFO to weighted average. The engagement partner, CA Mehta, instructs the audit assistant, CA Rohit, to use the same audit programme prepared three years ago for the sugar division. The programme covers vouching of purchase invoices, physical verification of sugar bags, and reconciliation of stock registers, but contains no steps for ethanol by-products, ERP access controls, or the revised valuation method. During execution, CA Rohit notices a series of unusual journal entries transferring costs from the ethanol division to the sugar division, apparently to smooth segment profitability. The programme contains no instruction to examine inter-division cost transfers. CA Rohit is also unable to trace three high-value purchase invoices because the ERP generates system-numbered documents and the manual voucher register is incomplete. When he reports this, CA Mehta says the programme was approved before fieldwork and cannot be altered now. Meanwhile, the CFO emails the firm asking for a copy of the detailed audit programme, stating that the audit committee wants to verify coverage of the new ethanol operations. CA Mehta is unsure whether to share the programme and whether the unchanged programme creates any professional risk. The company's inventory at year-end is Rs 42 crore, including Rs 9 crore of ethanol by-products, and the ERP migration took effect on 1 July 2026. The board meeting is scheduled in four weeks.

The audit programme for Suryodaya Sugar Mills Ltd contains no steps for ethanol by-products, ERP access controls or the revised valuation method. What does the study material require the auditor to do in these circumstances?

1. Continue the old programme because a standard programme once framed remains valid until the client objects in writing.
2. Abandon the engagement because a programme that omits new areas cannot be corrected after fieldwork has begun.
3. Periodically review and modify the programme to cover the changed business operations, internal controls and valuation method. (correct answer)
4. Retain the old programme for the sugar division and prepare a separate unaudited report for the ethanol division.

Answer: C — Periodically review and modify the programme to cover the changed business operations, internal controls and valuation method.

Explanation. The study material on audit programme requires periodic review to assess whether it remains adequate for obtaining requisite knowledge and evidence. Changes in the business policy of the client or its internal controls may render the programme obsolete. The auditor must modify the programme to cover the ethanol by-products, ERP environment and revised valuation. Continuing an outdated programme or abandoning the engagement are not the prescribed responses, and splitting the audit into examined under statutory audit and unaudited segments is improper.

Where it goes wrong. Students often believe that once a programme is framed and approved, it must be followed rigidly; the study material expressly requires periodic review and modification.

Authority. SA 300; SA 320

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

CA Mehta refuses to alter the audit programme on the ground that it was approved before fieldwork began. How should this be evaluated under the study material?

1. Correct, because an approved programme cannot be revised until the next financial year's planning cycle.
2. Incorrect, because the assistant engaged in the job should keep an open mind and significant matters must be reported and the programme reviewed. (correct answer)
3. Correct, provided the engagement partner records the refusal in the working papers.
4. Incorrect, but revision is allowed only if the client's board passes a resolution requesting it.

Answer: B — Incorrect, because the assistant engaged in the job should keep an open mind and significant matters must be reported and the programme reviewed.

Explanation. The study material states that the assistant should be encouraged to keep an open mind beyond the programme and to note and report significant matters to seniors or the partner. The utility of the programme is retained only by keeping it and the client's operations under periodic review so that inadequacies are removed. A programme is not frozen by prior approval, and revision does not depend on a board resolution or a next-year cycle.

Where it goes wrong. Students may treat prior approval as an absolute bar to revision; the study material treats the programme as a living document subject to periodic review.

Authority. SA 300; SA 320

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

What is the most significant professional risk arising from continuing with the three-year-old programme unchanged for Suryodaya Sugar Mills Ltd?

1. The audit fee may be reduced because the programme is shorter than required.
2. The client may refuse to pay for procedures not listed in the programme.
3. The ERP vendor may claim copyright over the audit programme used.
4. Inadequacies or redundancies in the programme may go unnoticed, and the audit may be held negligent. (correct answer)

Answer: D — Inadequacies or redundancies in the programme may go unnoticed, and the audit may be held negligent.

Explanation. The study material warns that unless periodic review is done, the audit work may be carried on the basis of an obsolete programme and, for this negligence, the whole audit may be held as negligently conducted with legal consequences. Fee reduction, client payment disputes and copyright are not the professional risks identified. The core risk is that outdated procedures fail to address changed operations and controls, exposing the auditor to negligence allegations.

Where it goes wrong. Students may focus on commercial issues; the primary risk is professional negligence arising from an obsolete programme.

Authority. SA 300; SA 320

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

The CFO of Suryodaya Sugar Mills Ltd requests a copy of the detailed audit programme for the audit committee. What is the appropriate course of action for CA Mehta?

1. The auditor may discuss elements of planning with management to facilitate the audit, taking care not to compromise audit effectiveness. (correct answer)
2. The auditor must provide the complete programme because the audit committee has a statutory right to every working paper.
3. The auditor must refuse all communication with management because any sharing destroys the surprise element.
4. The auditor must provide the programme only after the board meeting is concluded and the report signed.

Answer: A — The auditor may discuss elements of planning with management to facilitate the audit, taking care not to compromise audit effectiveness.

Explanation. SA 300 permits the auditor to discuss elements of planning with the entity's management to facilitate the conduct and management of the audit engagement, provided care is taken not to compromise the effectiveness of the audit. The audit committee does not have an unrestricted statutory right to every working paper, and a blanket refusal of all communication is too rigid. Providing the programme only after the report is signed defeats the stated purpose of coordination.

Where it goes wrong. Students often swing between absolute refusal and absolute disclosure; SA 300 permits measured discussion with safeguards.

Authority. SA 300

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

Scenario. Alpha Infotech Ltd, a listed company, engaged M/s V. Raman & LLP for FY 2026-27. During planning, CA Raman documented the overall audit strategy: scope covering 14 branches, reporting objectives tied to SEBI timelines, deployment of two senior managers for revenue recognition, and use of an IT specialist for access controls. The detailed audit plan specified risk assessment procedures over new software revenue contracts, sampling of 200 invoices, and substantive testing of unbilled revenue. After fieldwork began, CA Raman learned that the company had entered into a large barter transaction with a related party, exchanging software licences for hardware without cash consideration. The audit plan had no procedure for non-cash related-party transactions. The manager, CA Iyer, suggested revising the plan to include inquiry and valuation testing of the barter arrangement. CA Raman initially resisted, saying the strategy and plan were already approved and communicated to those charged with governance. A new assistant, CA Sneha, questioned whether the audit programme should include steps for barter transactions and whether the plan could be modified mid-engagement. Meanwhile, the client requested a copy of the audit programme to align its internal testing. The audit committee also asked why the strategy had not originally covered related-party barter arrangements. CA Raman is concerned about documentation requirements if the plan is revised and whether the original strategy should be replaced entirely. The barter transaction is valued at Rs 6.5 crore. The team is midway through fieldwork, and the audit report is due in five weeks.

CA Raman initially resists revising the audit plan after learning of the barter transaction, saying the strategy and plan were already approved and communicated. How should this be evaluated under SA 300?

1. Correct, because a plan communicated to those charged with governance becomes binding on the auditor.
2. Correct, provided the barter transaction is below overall materiality for the financial statements.
3. Incorrect, because the auditor shall update and change the strategy and plan when new information differs significantly from that available at planning. (correct answer)
4. Incorrect, but revision is permitted only after obtaining the audit committee's written approval.

Answer: C — Incorrect, because the auditor shall update and change the 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 during the course of the audit. Unexpected events, changed conditions or new audit evidence may require modification of the strategy and plan and the resulting nature, timing and extent of further procedures. Communication to governance does not freeze the plan, and revision is not conditional on materiality alone or audit committee approval.

Where it goes wrong. Students may confuse communication of the plan with its finality; SA 300 treats planning as continuous and revisable.

Authority. SA 300

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

If CA Raman revises the strategy and plan to address the barter transaction, what must be documented under SA 300?

1. The significant changes made to the strategy or plan and the reasons for such changes, in addition to the original strategy and plan. (correct answer)
2. Only the revised plan; the original strategy and plan may be discarded to avoid confusion.
3. Only the reasons for change; the revised procedures need not be documented separately.
4. Only the barter transaction working paper; no changes to strategy or plan need be recorded.

Answer: A — The significant changes made to the strategy or plan and the reasons for such changes, in addition to the original strategy and plan.

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 such changes. The record explains why significant changes were made and reflects the final strategy and plan adopted. Discarding the original documents, recording only reasons, or ignoring the change altogether would fail the documentation requirement.

Where it goes wrong. Students often retain only the final documents; SA 300 requires the original strategy and plan plus the changes and reasons.

Authority. SA 300

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

How should the barter transaction with the related party be addressed in the audit plan and programme for Alpha Infotech Ltd?

1. It should be ignored because no cash consideration is involved and the financial statements are unaffected.
2. It should be referred to legal counsel and excluded from the audit plan pending their opinion.
3. It should be covered only through written representations from management at the completion stage.
4. The plan and programme should be revised to include procedures for identifying, valuing and disclosing the related-party barter arrangement. (correct answer)

Answer: D — The plan and programme should be revised to include procedures for identifying, valuing and disclosing the related-party barter arrangement.

Explanation. A barter transaction with a related party affects recognition, measurement and disclosure of the exchanged assets and requires audit procedures for identification, valuation and related-party disclosure under SA 550 read with SA 300. Ignoring it because there is no cash, referring it exclusively to legal counsel, or relying only on written representations at completion does not provide sufficient appropriate audit evidence. The plan and programme must be revised accordingly.

Where it goes wrong. Students may think non-cash transactions are outside audit scope; barter related-party transactions require specific audit procedures and disclosure.

Authority. SA 300; SA 550

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

Which statement correctly describes the relationship between overall audit strategy and detailed audit plan in the Alpha Infotech engagement?

1. The plan sets scope, timing and direction, while the strategy lists detailed procedures for assistants.
2. They are closely interrelated; changes in one may result in consequential changes to the other. (correct answer)
3. They are strictly sequential and cannot affect each other once the strategy is documented.
4. The strategy is more detailed than the plan and includes every vouching and sampling step.

Answer: B — 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, and the two cannot be treated as watertight compartments.

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

Scenario. Which of the following is not included in the audit plan as described by SA 300?

Which of the following is not included in the audit plan as described by SA 300?

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

Answer: C — The 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. Option c therefore falls outside the audit plan.

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

Authority. SA 300

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

Scenario. Which of the following is an advantage of a written audit programme?

Which of the following is an advantage of a written audit programme?

1. It fixes responsibility through sign-off and can serve as evidence of reasonable skill and care in a negligence claim. (correct answer)
2. It eliminates the need for supervision by the engagement partner and manager.
3. It removes the need for professional judgment during the audit.
4. It allows the same programme to be applied to every client irrespective of business nature.

Answer: A — It fixes responsibility through sign-off and can serve as evidence of reasonable skill and care in a negligence claim.

Explanation. The study material lists among the advantages of an audit programme that assistants, by signing the programme, accept responsibility for work carried out individually, and that a properly drawn up programme serves as evidence in the event of a charge of negligence. It does not eliminate supervision or professional judgment, nor can one programme apply to all businesses because businesses vary in nature, size and composition.

Where it goes wrong. Students may overstate the programme's role and believe it eliminates supervision or judgment; the study material warns that these remain essential.

Authority. SA 300; SA 320

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

Scenario. Which of the following is not a disadvantage of an audit programme identified in the study material?

Which of the following is not a disadvantage of an audit programme identified in the study material?

1. The work may become mechanical and parts of the programme may be carried out without understanding their object.
2. The programme often tends to become rigid and inflexible following set grooves.
3. Inefficient assistants may take shelter behind the programme to defend deficiencies in their work.
4. The programme automatically removes the need for imaginative supervision by the engagement partner. (correct answer)

Answer: D — The programme automatically removes the need for imaginative supervision by the engagement partner.

Explanation. The study material identifies disadvantages such as mechanical work, rigidity and inflexibility, inefficient assistants sheltering behind the programme, and the programme killing the initiative of enterprising assistants. It expressly states that these disadvantages may be eliminated by imaginative supervision of the work carried on by assistants. Option d is therefore not a disadvantage but a misstatement of the programme's effect; supervision remains essential.

Where it goes wrong. Students may confuse the cure for the disadvantages (imaginative supervision) with an alleged feature of the programme; the programme does not remove the need for supervision.

Authority. SA 300; SA 320

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

Scenario. Which point is not among the considerations for constructing an audit programme listed in the study material?

Which point is not among the considerations for constructing an audit programme listed in the study material?

1. Stay within the scope and limitation of the assignment.
2. Ensure the audit fee is maximized by expanding the programme beyond the engagement scope. (correct answer)
3. Include the audit objectives for each area and sufficient details to instruct assistants.
4. Consider all possibilities of error and co-ordinate procedures to related items.

Answer: B — Ensure the audit fee is maximized by expanding the programme beyond the engagement scope.

Explanation. The study material lists among the points for programme construction: staying within the scope and limitation of the assignment; preparing a written audit programme; determining evidence reasonably available; applying only useful steps; including audit objectives and sufficient details; considering all possibilities of error; and co-ordinating procedures to related items. Maximizing the audit fee by expanding beyond scope is not a legitimate consideration and conflicts with staying within the assignment's scope.

Where it goes wrong. Students may think a bigger programme is always better; the study material requires staying within scope and applying only useful steps.

Authority. SA 300; SA 320

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

Scenario. The study material states that the word 'available' in the context of audit evidence does not mean:

The study material states that the word 'available' in the context of audit evidence does not mean:

1. Only the evidence available with the client. (correct answer)
2. Evidence that the auditor should know normally should be available in the context of the transaction.
3. Evidence considered having regard to the circumstances and usage of the transaction.
4. Evidence from fields such as documentary examination and third-party statements.

Answer: A — Only the evidence available with the client.

Explanation. The study material clarifies that by the word 'available', it does not mean that the evidence available with the client is the only available evidence. The auditor should know what normally should be available in the context of the transaction having regard to the circumstances and usage. Evidence from documentary examination, third-party statements and other fields may be relevant. Option a is therefore the correct answer because the study material expressly rejects it.

Where it goes wrong. Students may equate 'available' with what the client hands over; the study material broadens it to what should normally be available in the circumstances.

Authority. SA 300; SA 320

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

Scenario. Periodic review of the audit programme is necessary primarily to:

Periodic review of the audit programme is necessary primarily to:

1. Reduce the audit fee by shortening the programme irrespective of risk.
2. Satisfy the client's internal audit committee without regard to audit evidence.
3. Assess whether the programme remains adequate for obtaining requisite knowledge and evidence about transactions. (correct answer)
4. Replace the engagement partner's professional judgment with a mechanical checklist.

Answer: C — Assess whether the programme remains adequate for obtaining requisite knowledge and evidence about transactions.

Explanation. The study material states that there should be periodic review of the audit programme to assess whether the same continues to be adequate for obtaining requisite knowledge and evidence about the transactions. Unless this is done, changes in the client's business policy may not be known and the audit may be carried on with an obsolete programme. Reducing fees, satisfying the committee without evidence, or replacing judgment with a checklist are not the purpose of periodic review.

Where it goes wrong. Students may see periodic review as an administrative exercise; it is a substantive safeguard against an obsolete programme.

Authority. SA 300; SA 320

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

Scenario. Who is responsible for establishing the overall audit strategy and developing the audit plan?

Who is responsible for establishing the overall audit strategy and developing the audit plan?

1. The client's finance head, because the client has the most suitable knowledge of its business.
2. The engagement quality control reviewer, because the reviewer approves the plan before fieldwork.
3. The audit assistant, because the assistant executes the programme in the field.
4. The auditor, although elements of planning may be discussed with management without compromising effectiveness. (correct answer)

Answer: D — The auditor, although elements of planning may be discussed with management without compromising effectiveness.

Explanation. SA 300 states that the overall audit strategy and the audit plan remain the auditor's responsibility. The auditor is responsible for establishing the strategy and developing the plan, although elements of planning may be discussed with the entity's management without compromising the effectiveness of the audit. Delegating the responsibility to the client's finance head, the quality control reviewer or the assistant is incorrect.

Where it goes wrong. Students may think client knowledge makes the client responsible for strategy; the auditor's responsibility cannot be delegated to the client.

Authority. SA 300

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

Scenario. According to the study material, an audit programme consists of:

According to the study material, an audit programme consists of:

1. A narrative description of the client's business and internal control environment.
2. A series of verification procedures to be applied to the financial statements and accounts for obtaining sufficient evidence to express an informed opinion. (correct answer)
3. The auditor's report and the management representation letter together.
4. The engagement letter and the fee quotation submitted to the client.

Answer: B — A series of verification procedures to be applied to the financial statements and accounts for obtaining sufficient evidence to express an informed opinion.

Explanation. The study material defines an audit programme as consisting of a series of verification procedures to be applied to the financial statements and accounts of a given entity for the purpose of obtaining sufficient evidence to enable the auditor to express an informed opinion on financial statements. It is a detailed plan of applying audit procedures with instructions for appropriate techniques. Business descriptions, the report, representations, engagement letter and fee quotation are not the definition of the programme.

Where it goes wrong. Students may confuse the audit programme with the audit plan or the engagement documentation as a whole; the programme is a series of verification procedures.

Authority. SA 300; SA 320

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

Scenario. The study material states that evolving one audit programme applicable to all businesses under all circumstances is not practicable. What is the primary reason?

The study material states that evolving one audit programme applicable to all businesses under all circumstances is not practicable. What is the primary reason?

1. Businesses vary in nature, size and composition, and internal controls and the precise nature of services vary from assignment to assignment. (correct answer)
2. The Companies Act, 2013 prohibits the use of standard audit programmes for all companies.
3. ICAI's Standards on Auditing require every audit programme to be approved by the audit committee before use.
4. A standard programme is only permissible for government companies and not for private companies.

Answer: A — Businesses vary in nature, size and composition, and internal controls and the precise nature of services vary from assignment to assignment.

Explanation. The study material explains that businesses vary in nature, size and composition; work suitable to one business may not be suitable to others; efficiency and operation of internal controls and the precise nature of services rendered vary from assignment to assignment. On account of such variations, one programme applicable to all businesses is not practicable. No statutory provision or SA requires audit committee approval of every programme or restricts standard programmes to government companies.

Where it goes wrong. Students may invent a legal prohibition; the reason is the practical variation among businesses and assignments, not a statutory ban.

Authority. SA 300; SA 320

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

Scenario. M/s K. Mehta & Co. has been the statutory auditor of Suryodaya Sugar Mills Ltd for four years. During FY 2026-27, the company diversified into ethanol blending, installed a new ERP module, and changed its inventory valuation method from FIFO to weighted average. The engagement partner, CA Mehta, instructs the audit assistant, CA Rohit, to use the same audit programme prepared three years ago for the sugar division. The programme covers vouching of purchase invoices, physical verification of sugar bags, and reconciliation of stock registers, but contains no steps for ethanol by-products, ERP access controls, or the revised valuation method. During execution, CA Rohit notices a series of unusual journal entries transferring costs from the ethanol division to the sugar division, apparently to smooth segment profitability. The programme contains no instruction to examine inter-division cost transfers. CA Rohit is also unable to trace three high-value purchase invoices because the ERP generates system-numbered documents and the manual voucher register is incomplete. When he reports this, CA Mehta says the programme was approved before fieldwork and cannot be altered now. Meanwhile, the CFO emails the firm asking for a copy of the detailed audit programme, stating that the audit committee wants to verify coverage of the new ethanol operations. CA Mehta is unsure whether to share the programme and whether the unchanged programme creates any professional risk. The company's inventory at year-end is Rs 42 crore, including Rs 9 crore of ethanol by-products, and the ERP migration took effect on 1 July 2026. The board meeting is scheduled in four weeks.

CA Rohit is unable to trace three high-value purchase invoices because the ERP generates system-numbered documents and the manual voucher register is incomplete. What should the audit programme be revised to include?

1. Only physical verification of the sugar bags, since the ERP is presumed reliable.
2. A written representation from management that all invoices exist and are complete.
3. A blanket reliance on the ERP vendor's system certification for invoice completeness.
4. Procedures over the completeness of the voucher register and over the reliability and completeness of system-generated documents. (correct answer)

Answer: D — Procedures over the completeness of the voucher register and over the reliability and completeness of system-generated documents.

Explanation. The study material requires the auditor to determine the evidence reasonably available and to identify the most suitable evidence for deriving the necessary satisfaction, while considering all possibilities of error. Where the voucher register is incomplete and documents are system-generated, the programme should be revised to test completeness of the register and the reliability and completeness of system-generated documents. Physical verification, representations or vendor certification alone do not address the traceability of high-value invoices.

Where it goes wrong. Students may rely on written representations or vendor certification for completeness; the study material requires procedures over the evidence actually available and consideration of error possibilities.

Authority. SA 300; SA 320

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

Scenario. According to the study material, in which situation may the auditor have no discretion as to the timing of audit procedures?

According to the study material, in which situation may the auditor have no discretion as to the timing of audit procedures?

1. Vouching of routine cash sales invoices at the client's convenience.
2. Observing the taking of inventories by client personnel or verifying securities and cash balances at year-end. (correct answer)
3. Reviewing the minutes of the board meetings at any time before the report date.
4. Confirming trade receivables at any mutually agreed date with the client.

Answer: B — Observing the taking of inventories by client personnel or verifying securities and cash balances at year-end.

Explanation. The study material states that although the auditor normally has flexibility in deciding when to perform audit procedures, in some cases there may be no discretion as to timing, for example, when observing the taking of inventories by client personnel or verifying the securities and cash balances at the year-end. Routine vouching, minute review and receivable confirmations generally retain timing flexibility, subject to evidence requirements.

Where it goes wrong. Students may assume all procedures are flexible; the study material identifies inventory observation and year-end physical verification as fixed-timing procedures.

Authority. SA 300; SA 320

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

Scenario. Alpha Infotech Ltd, a listed company, engaged M/s V. Raman & LLP for FY 2026-27. During planning, CA Raman documented the overall audit strategy: scope covering 14 branches, reporting objectives tied to SEBI timelines, deployment of two senior managers for revenue recognition, and use of an IT specialist for access controls. The detailed audit plan specified risk assessment procedures over new software revenue contracts, sampling of 200 invoices, and substantive testing of unbilled revenue. After fieldwork began, CA Raman learned that the company had entered into a large barter transaction with a related party, exchanging software licences for hardware without cash consideration. The audit plan had no procedure for non-cash related-party transactions. The manager, CA Iyer, suggested revising the plan to include inquiry and valuation testing of the barter arrangement. CA Raman initially resisted, saying the strategy and plan were already approved and communicated to those charged with governance. A new assistant, CA Sneha, questioned whether the audit programme should include steps for barter transactions and whether the plan could be modified mid-engagement. Meanwhile, the client requested a copy of the audit programme to align its internal testing. The audit committee also asked why the strategy had not originally covered related-party barter arrangements. CA Raman is concerned about documentation requirements if the plan is revised and whether the original strategy should be replaced entirely. The barter transaction is valued at Rs 6.5 crore. The team is midway through fieldwork, and the audit report is due in five weeks.

CA Sneha asks whether the audit programme for Alpha Infotech Ltd should include steps for barter transactions. Which response most accurately reflects the study material's approach to constructing a programme?

1. The programme should never include steps not originally approved by the engagement partner.
2. The programme should include every conceivable transaction in the industry, whether or not relevant to the assignment.
3. The programme should be revised to include only those steps useful in accomplishing the verification purpose in the specific situation, with sufficient details for assistants. (correct answer)
4. The programme should be replaced by written representations from management about barter transactions.

Answer: C — The programme should be revised to include only those steps useful in accomplishing the verification purpose in the specific situation, with sufficient details for assistants.

Explanation. The study material requires the auditor to apply only those steps and procedures which are useful in accomplishing the verification purpose in the specific situation, and to include the audit objectives for each area with sufficient details to serve as instructions for assistants. Steps for barter transactions are relevant here and should be added; including every conceivable transaction is over-inclusive and replacing procedures with representations is insufficient. The programme is not frozen by original approval.

Where it goes wrong. Students may think adding relevant steps is prohibited or that representations can replace procedures; the study material requires useful, targeted steps with sufficient detail.

Authority. SA 300; SA 320