Audit Documentation - Test 1: answer key

Question 1 · 2 marks · Chapter 6: Audit Documentation · medium

Scenario. M/s Sharma & Associates, Chartered Accountants, is the statutory auditor of Alpha Infotech Ltd, an unlisted public company with turnover of Rs. 480 crore, for FY 2025-26. Engagement partner CA Nisha Sharma signs the auditor's report on 28 August 2026. During fieldwork, junior CA Rohan tested 60 revenue contracts and documented the sample size, but omitted identifying characteristics for 12 contracts, did not record who performed each test or the date, and obtained no review sign-off from CA Nisha. On 24 May 2026, CA Nisha and manager CA Aravind discussed with the CFO and audit committee a significant revenue cut-off matter: Rs. 2.40 crore of software licence revenue had been recognised before customer acceptance; management initially refused deferral but later agreed, after TCWG intervention, to reverse the entry. The audit file records only: 'Cut-off issue discussed and resolved.' Later, while reviewing an unrecorded credit note, CA Rohan found evidence inconsistent with the team's final conclusion that the cut-off adjustment was complete; he orally informed CA Nisha, but no note was made. On 3 November 2026, after the report date, a staff member added a missing review sign-off and deleted superseded draft schedules. CA Nisha asks whether the file can still be updated and what SA 230 requires.

For the 24 May 2026 discussion on the revenue cut-off matter with the CFO and audit committee, which documentation is most appropriate under SA 230?

1. Only the conclusion that the cut-off issue was resolved, since management reversed the entry and no further action remained.
2. A summary of the matter and amount, but not the date or persons, because TCWG meetings are separately minuted by the company.
3. The nature of the significant matter, when and with whom it was discussed, and the conclusions reached, including how any inconsistency was addressed. (correct answer)
4. Only the oral briefing note prepared by CA Rohan, because the engagement partner personally attended the meeting.

Answer: C — The nature of the significant matter, when and with whom it was discussed, and the conclusions reached, including how any inconsistency was addressed.

Explanation. SA 230 requires documentation of discussions of significant matters with management, TCWG and others, including the nature of the matter, when and with whom it was discussed, and conclusions reached. Company minutes are not a substitute for the auditor's own record. If information inconsistent with the final conclusion is identified, the auditor must document how it was addressed.

Where it goes wrong. Students often treat a one-line conclusion or client-prepared minutes as sufficient documentation of a significant TCWG discussion.

Authority. SA 230

Question 2 · 2 marks · Chapter 6: Audit Documentation · hard

CA Rohan found an unrecorded credit note inconsistent with the team's final conclusion on the cut-off adjustment, but only informed CA Nisha orally. What does SA 230 require?

1. Discard the credit note as it relates to a superseded draft and would confuse the reviewer.
2. Document how the auditor addressed the inconsistency with the final conclusion regarding the significant matter. (correct answer)
3. Include the matter only in the management representation letter, not in the audit file.
4. Record the credit note in the permanent file without linking it to the conclusion because oral reporting is enough.

Answer: B — Document how the auditor addressed the inconsistency with the final conclusion regarding the significant matter.

Explanation. SA 230 specifically requires that if the auditor identifies information inconsistent with the auditor's final conclusion regarding a significant matter, the auditor shall document how the inconsistency was addressed. Oral communication to the engagement partner does not satisfy the documentation requirement. The credit note should not be discarded merely because it creates inconsistency.

Where it goes wrong. Students may think that escalation to the engagement partner, without a file note, satisfies documentation.

Authority. SA 230

Question 3 · 2 marks · Chapter 6: Audit Documentation · medium

The auditor's report is dated 28 August 2026. On 3 November 2026, a staff member adds a missing review sign-off and deletes superseded draft schedules. Which statement is correct under SA 230?

1. The 60-day assembly period had expired; adding a missing review sign-off after that is not ordinary final assembly, and after final assembly documentation cannot be deleted before the retention period ends. (correct answer)
2. Deletion of superseded drafts is always permitted during final assembly even after 60 days, and a review sign-off can be added anytime before the retention period ends.
3. Changes after the report date are allowed if they improve quality, provided the auditor performs new audit procedures to confirm the sign-off.
4. The file can be updated until 28 August 2033 because the retention period is seven years; all administrative changes are allowed.

Answer: A — The 60-day assembly period had expired; adding a missing review sign-off after that is not ordinary final assembly, and after final assembly documentation cannot be deleted before the retention period ends.

Explanation. SA 230 requires final audit file assembly on a timely basis after the report date, ordinarily within 60 days. Changes during final assembly must be administrative only and cannot involve new audit procedures or new conclusions. After assembly is complete, audit documentation cannot be deleted or discarded before the retention period ends. The 60-day period here had already expired.

Where it goes wrong. Students confuse the seven-year retention period with a seven-year permission to amend or delete documentation.

Authority. SA 230

Question 4 · 2 marks · Chapter 6: Audit Documentation · hard

For the 60 revenue contracts tested by CA Rohan, which minimum matters must be recorded under SA 230?

1. Only the sample size and conclusion, because identifying individual contracts is unnecessary if the sampling method is random.
2. Only who performed the testing and the date, because review sign-off is not required for routine revenue testing.
3. Only the audit programme reference and total population, because individual item identification is administrative.
4. Identifying characteristics of the specific contracts tested, who performed the work and the date, and who reviewed the work with the date and extent of review. (correct answer)

Answer: D — Identifying characteristics of the specific contracts tested, who performed the work and the date, and who reviewed the work with the date and extent of review.

Explanation. SA 230 requires the auditor to record identifying characteristics of specific items tested, who performed the audit work and when, and who reviewed the work, including the date and extent of review. A generic programme reference or sample size alone does not allow an experienced auditor to understand what was tested and reviewed.

Where it goes wrong. Students often believe that filing the audit programme automatically documents the specific items tested and review sign-offs.

Authority. SA 230

Question 5 · 2 marks · Chapter 6: Audit Documentation · medium

Scenario. M/s K. Mehta & Co. LLP audits Zenith Manufacturing Pvt Ltd, a steel fabrication company with inventory at three godowns and a cash credit limit from Suryodaya Bank. The FY 2025-26 audit report is dated 30 September 2026. CA Kabir Mehta, engagement partner, could not attend the physical inventory count at the Pune godown on 31 March 2026 because management restricted access after a labour dispute; the team performed roll-forward and roll-back procedures and obtained third-party warehouse confirmation for two godowns. At the Nashik godown, the external confirmation from the warehouse custodian differed by Rs. 18.50 lakh; management gave a reconciliation based on 'goods in transit' but no supporting lorry receipts were placed on file. The team also evaluated a Rs. 3.20 crore obsolete stock provision. Management's estimate used a 15% net realisable value haircut; the auditor concluded that 35% was required based on post-year-end sales, and management adjusted the financial statements. The file contains only the final adjusted schedule and a note: 'Provision revised as discussed.' During review, the partner finds no record of the auditor's basis for concluding 35%, no documentation of the access restriction, and no record of discussion with TCWG on the confirmation exception. The firm's quality reviewer asks what SA 230 requires to be documented.

What should be documented regarding the team's inability to attend the Pune physical inventory count?

1. Only the conclusion that alternative procedures provided sufficient evidence; the reason for absence need not be recorded if the roll-forward was performed.
2. The nature, timing and extent of alternative procedures, their results, and the significant professional judgement and conclusion, including the access restriction and its effect on the audit. (correct answer)
3. Only management's written representation that access was restricted, because the auditor's own record is unnecessary.
4. Only the inventory count instruction sheet; no record of alternative procedures is needed because another team attended the Nashik godown.

Answer: B — The nature, timing and extent of alternative procedures, their results, and the significant professional judgement and conclusion, including the access restriction and its effect on the audit.

Explanation. SA 230 requires documentation sufficient for an experienced auditor to understand procedures performed, evidence obtained, significant matters and conclusions. Where attendance at inventory count is impracticable, the auditor documents the reason and alternative procedures performed under SA 501. A bare conclusion or management representation does not adequately record the audit judgement and evidence.

Where it goes wrong. Students may think the reason for non-attendance is not an audit matter if alternative procedures were performed.

Authority. SA 230; SA 501

Question 6 · 2 marks · Chapter 6: Audit Documentation · hard

The warehouse confirmation differed by Rs. 18.50 lakh and management gave an unsupported 'goods in transit' reconciliation. What should the audit file record?

1. Only the final reconciliation signed by management; supporting lorry receipts are client records and need not be in the audit file.
2. Only a note that the confirmation exception was resolved by management, because external confirmations are not significant matters.
3. The exception, management's response, the audit procedures performed, evidence obtained including the absence of lorry receipts, and the conclusion on whether a misstatement exists. (correct answer)
4. A copy of the bank confirmation only, because the warehouse confirmation is third-party and not part of audit documentation.

Answer: C — The exception, management's response, the audit procedures performed, evidence obtained including the absence of lorry receipts, and the conclusion on whether a misstatement exists.

Explanation. SA 230 requires documentation of the results of audit procedures and audit evidence obtained, including exceptions and how they were resolved. Under SA 505, unresolved or reconciled confirmation exceptions require evaluation. Management's unsupported reconciliation does not by itself close the matter. The auditor must document the evidence and conclusion on possible misstatement.

Where it goes wrong. Students often accept a management reconciliation as sufficient without documenting the supporting evidence or conclusion.

Authority. SA 230; SA 505

Question 7 · 2 marks · Chapter 6: Audit Documentation · medium

The team could not attend the Pune count and used alternative procedures. Which documentation most suitable addresses a departure from a relevant requirement of an SA?

1. Document the reason for the departure and how the alternative procedures performed achieved the aim of the relevant requirement. (correct answer)
2. Document only the alternative procedures; reasons for departure are confidential and need not be in the audit file.
3. Document management's refusal and issue a disclaimer; no alternative procedures or documentation are needed.
4. Document the departure only in the engagement letter, not in the audit file.

Answer: A — Document the reason for the departure and how the alternative procedures performed achieved the aim of the relevant requirement.

Explanation. SA 230 provides that if the auditor departs from a relevant requirement of an SA, the audit documentation must record the reasons for departure and how alternative audit procedures performed achieved the aim of that requirement. Documenting only the alternative work, or only the refusal, does not satisfy the standard.

Where it goes wrong. Students may record alternative procedures but omit the reason for departure and how the requirement's objective was met.

Authority. SA 230

Question 8 · 2 marks · Chapter 6: Audit Documentation · hard

For the obsolete stock provision revised from 15% to 35%, what documentation is required under SA 230?

1. Only the final adjusted schedule, because management accepted the auditor's figure.
2. Only the post-year-end sales invoices, because they are audit evidence and the basis for the conclusion is obvious.
3. Only a note that the provision was revised as discussed, since professional judgement need not be documented if the amount is material.
4. The auditor's basis for concluding that 35% was reasonable, including significant assumptions, evidence and the professional judgement exercised. (correct answer)

Answer: D — The auditor's basis for concluding that 35% was reasonable, including significant assumptions, evidence and the professional judgement exercised.

Explanation. SA 230 requires documentation of significant matters, conclusions reached, and significant professional judgements made in reaching those conclusions. The basis for a subjective estimate such as obsolete stock provision must be documented. The final schedule alone or a brief note does not explain the auditor's judgement and evidence.

Where it goes wrong. Students assume that management's acceptance of an adjusted figure eliminates the need to document the auditor's judgement.

Authority. SA 230

Question 9 · 2 marks · Chapter 6: Audit Documentation · medium

Scenario. Under SQC 1 and SA 230, unless law or regulation provides otherwise, audit documentation is the property of the auditor. The client requests the complete audit file. Which statement is correct?

Under SQC 1 and SA 230, unless law or regulation provides otherwise, audit documentation is the property of the auditor. The client requests the complete audit file. Which statement is correct?

1. The auditor must provide the complete file because the client paid fees and the records relate to the client's business.
2. The auditor may, at discretion, provide portions or extracts, provided disclosure does not undermine the validity of the work or the independence of the auditor or personnel. (correct answer)
3. The auditor must provide the file only after the retention period ends; before that, no extracts can ever be shared.
4. The auditor must provide the file to TCWG but never to management, regardless of validity or independence.

Answer: B — The auditor may, at discretion, provide portions or extracts, provided disclosure does not undermine the validity of the work or the independence of the auditor or personnel.

Explanation. SA 230 and SQC 1 state that audit documentation is the property of the auditor unless law or regulation specifies otherwise. The auditor is not obliged to give the client the complete file but may provide portions or extracts at discretion, subject to safeguards against undermining the validity of the work or independence.

Where it goes wrong. Students often assume the client owns the audit file because the audit fee is paid by the client.

Authority. SA 230; SQC 1

Question 10 · 2 marks · Chapter 6: Audit Documentation · hard

Scenario. An audit report is dated 30 September 2026. What is the ordinary minimum retention period for the audit engagement documentation under SQC 1?

An audit report is dated 30 September 2026. What is the ordinary minimum retention period for the audit engagement documentation under SQC 1?

1. Three years from the balance sheet date.
2. Five years from the date of the auditor's report.
3. Seven years from the date of the auditor's report, or if later, the date of the group auditor's report. (correct answer)
4. Ten years from the date of the annual general meeting.

Answer: C — Seven years from the date of the auditor's report, or if later, the date of the group auditor's report.

Explanation. SQC 1 requires firms to establish retention policies. The retention period for audit engagements is ordinarily no shorter than seven years from the date of the auditor's report or, if later, the date of the group auditor's report. Shorter periods such as three or five years are not compliant with the ordinary standard.

Where it goes wrong. Students may recall retention from the balance sheet date or AGM date instead of the auditor's report date.

Authority. SQC 1

Question 11 · 2 marks · Chapter 6: Audit Documentation · medium

Scenario. Which of the following items need not be included in audit documentation under SA 230?

Which of the following items need not be included in audit documentation under SA 230?

1. Superseded drafts of working papers and financial statements, notes reflecting incomplete or preliminary thinking, duplicates, and copies corrected only for typographical errors. (correct answer)
2. The audit programme, confirmation letters, representation letters and correspondence on significant matters.
3. Identifying characteristics of items tested and records of who reviewed the work and when.
4. Documentation of significant matters, conclusions reached and significant professional judgements.

Answer: A — Superseded drafts of working papers and financial statements, notes reflecting incomplete or preliminary thinking, duplicates, and copies corrected only for typographical errors.

Explanation. SA 230 states that the auditor need not include superseded drafts, notes reflecting incomplete or preliminary thinking, previous copies corrected only for typographical or other errors, and duplicates of documents. The other options are examples of documentation that ordinarily forms part of the audit file.

Where it goes wrong. Students may think every draft and duplicate must be retained to prove the audit was thorough.

Authority. SA 230

Question 12 · 2 marks · Chapter 6: Audit Documentation · hard

Scenario. CA Piku documented only the nature, timing and extent of audit procedures performed. He did not record results, audit evidence obtained, significant matters or conclusions. Is this sufficient under SA 230?

CA Piku documented only the nature, timing and extent of audit procedures performed. He did not record results, audit evidence obtained, significant matters or conclusions. Is this sufficient under SA 230?

1. Yes, provided the audit programme is also filed with the working papers.
2. Yes, because results are reflected in the financial statements and conclusions are implicit.
3. Yes, if no material misstatement was ultimately found by the auditor.
4. No; documentation must enable an experienced auditor with no previous connection to understand the procedures, results and evidence, and significant matters, conclusions and significant judgements. (correct answer)

Answer: D — No; documentation must enable an experienced auditor with no previous connection to understand the procedures, results and evidence, and significant matters, conclusions and significant judgements.

Explanation. SA 230 requires documentation sufficient to enable an experienced auditor with no previous connection to the audit to understand the nature, timing and extent of procedures, results and evidence obtained, and significant matters, conclusions and significant professional judgements. Documenting only procedures is incomplete even if no material misstatement is found.

Where it goes wrong. Students may treat the audit programme as a complete substitute for documenting results and conclusions.

Authority. SA 230

Question 13 · 2 marks · Chapter 6: Audit Documentation · medium

Scenario. Which of the following is not an example of a significant matter for audit documentation under SA 230?

Which of the following is not an example of a significant matter for audit documentation under SA 230?

1. Matters that give rise to significant risks.
2. Findings that could result in a modification to the audit opinion or inclusion of an Emphasis of Matter paragraph.
3. A routine petty cash reconciliation that was reviewed by the senior and showed no exception. (correct answer)
4. Circumstances that caused the auditor significant difficulty in applying necessary audit procedures.

Answer: C — A routine petty cash reconciliation that was reviewed by the senior and showed no exception.

Explanation. SA 230 lists examples of significant matters including significant risks, results indicating possible material misstatement or need to revise risk assessment, circumstances causing significant difficulty, and findings that could modify the opinion or require an Emphasis of Matter paragraph. A routine reconciliation with no exception is not, by itself, a significant matter.

Where it goes wrong. Students may classify every working paper as a significant matter, ignoring professional judgement about significance.

Authority. SA 230

Question 14 · 2 marks · Chapter 6: Audit Documentation · hard

Scenario. Which statement about timely preparation of audit documentation is correct under SA 230?

Which statement about timely preparation of audit documentation is correct under SA 230?

1. Documentation may be prepared after the report date as long as it is before the assembly deadline; timing does not affect quality.
2. Documentation should be prepared on a timely basis; documentation prepared after the audit work is performed is likely to be less accurate than documentation prepared at the time the work is performed. (correct answer)
3. Only the final audit file must be prepared timely; individual working papers can be created later from memory.
4. Timely documentation is required only for significant matters, not for routine audit procedures.

Answer: B — Documentation should be prepared on a timely basis; documentation prepared after the audit work is performed is likely to be less accurate than documentation prepared at the time the work is performed.

Explanation. SA 230 requires audit documentation to be prepared on a timely basis. Timely documentation enhances audit quality and facilitates effective review before the report is finalised. Documentation prepared after the work is performed is likely to be less accurate and less reliable. The requirement applies to audit documentation generally, not only significant matters.

Where it goes wrong. Students confuse timely preparation during the audit with the later administrative assembly of the final audit file.

Authority. SA 230

Question 15 · 2 marks · Chapter 6: Audit Documentation · medium

Scenario. During final assembly of the audit file after the report date, which change is permitted under SA 230?

During final assembly of the audit file after the report date, which change is permitted under SA 230?

1. Deleting superseded documentation, sorting and cross-referencing working papers, and signing completion checklists, if the changes are administrative in nature. (correct answer)
2. Performing new audit procedures to fill a gap identified after the report date and adding new conclusions.
3. Changing the audit opinion from unmodified to qualified without reissuing the auditor's report.
4. Discarding all documents that support an unresolved inconsistency identified during the audit.

Answer: A — Deleting superseded documentation, sorting and cross-referencing working papers, and signing completion checklists, if the changes are administrative in nature.

Explanation. SA 230 permits changes during final assembly only if they are administrative, such as deleting superseded documentation, sorting and cross-referencing working papers, and signing completion checklists. Final assembly cannot involve new audit procedures or new conclusions, and it cannot be used to alter the audit opinion or discard evidence.

Where it goes wrong. Students may treat final assembly as an opportunity to perform extra audit work or remove inconvenient documents.

Authority. SA 230