Audit Documentation - Test 2: answer key

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

Scenario. M/s V. Raman & LLP is the statutory auditor of Zenith Manufacturing Pvt Ltd, a Pune-based auto components manufacturer, for FY 2025-26. The auditor's report is signed on 30 September 2026. The engagement partner, CA V. Raman, is reviewing the audit file before the firm's quality control inspection. He finds that the final audit file was assembled on 15 January 2027—more than 60 days after the report date. During assembly, the team added a missing bank confirmation received on 10 January 2027 and deleted certain superseded working papers. The client, Zenith Manufacturing, has now requested a complete copy of the audit file, stating that since it paid the audit fees, it owns the documentation. Separately, the firm's tax department, without the client's consent, borrowed a copy of the audit file to verify a deferred tax computation for an unrelated client. The partner also notices that the current audit file contains the company's memorandum and articles of association, board resolutions from 2010, and the permanent account number (PAN) card—documents that have continuing relevance across years. The firm's retention policy states that audit files are destroyed after five years from the date of the auditor's report. CA V. Raman is concerned about compliance with SQC 1, SA 230 and the Code of Ethics.

The final audit file for Zenith Manufacturing Pvt Ltd was assembled on 15 January 2027, after the auditor's report dated 30 September 2026. What is the consequence under SQC 1 and SA 230?

1. The assembly is valid because the 60-day limit applies only to listed companies, and Zenith is a private limited company.
2. The assembly is a violation; ordinarily the final audit file should be assembled not more than 60 days after the auditor's report date, and additions must be administrative only. (correct answer)
3. The assembly is valid because a bank confirmation received after the report date can be added even if it involves a new audit procedure.
4. The assembly is valid because the retention period has not expired; the firm can assemble the file at any time before the seven-year retention period ends.

Answer: B — The assembly is a violation; ordinarily the final audit file should be assembled not more than 60 days after the auditor's report date, and additions must be administrative only.

Explanation. SQC 1 and SA 230 require the auditor to assemble the final audit file on a timely basis, ordinarily not more than 60 days after the date of the auditor's report. The 60-day limit is not restricted to listed entities. Changes during final assembly must be administrative in nature and cannot involve new audit procedures or new conclusions. Adding a bank confirmation received after the report date may involve a new audit procedure and is not permissible as part of final assembly.

Where it goes wrong. Students may think the 60-day limit applies only to listed companies or that any document can be added before the retention period ends.

Authority. SA 230; SQC 1

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

Zenith Manufacturing has requested a complete copy of the audit file, claiming ownership because it paid the audit fees. How should CA V. Raman respond under SQC 1 and SA 230?

1. Provide the complete file because payment of audit fees transfers ownership of all working papers to the client.
2. Provide the complete file only after the seven-year retention period ends; before that, no extracts can be shared with the client.
3. Explain that audit documentation is the property of the auditor; 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. (correct answer)
4. Refuse to share any extract ever, because audit documentation can never be disclosed to the client under any circumstances.

Answer: C — Explain that audit documentation is the property of the auditor; 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.

Explanation. SQC 1 and SA 230 state that, unless otherwise specified by law or regulation, audit documentation is the property of the auditor. The auditor is not obliged to provide the complete file to the client. However, the auditor may, at discretion, make portions or extracts available, provided such disclosure does not undermine the validity of the work or, in assurance engagements, the independence of the auditor or personnel. Payment of fees does not transfer ownership.

Where it goes wrong. Students often assume the client owns the audit file because the client pays audit fees or because the records relate to the client's business.

Authority. SA 230; SQC 1

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

The firm's tax department, without client consent, used a copy of Zenith's audit file for an unrelated client's deferred tax computation. Which statement is correct under the ICAI Code of Ethics and SA 230?

1. This is acceptable because both clients are examined under statutory audit by the same firm and the tax department is part of the firm.
2. This is acceptable because audit documentation is the auditor's property, and the auditor can use it for any purpose.
3. This is acceptable if the tax department did not disclose the client's name in the working papers used.
4. This is a breach of confidentiality; the auditor should not disclose client information to third parties without client consent unless there is a legal or professional right or duty to disclose. (correct answer)

Answer: D — This is a breach of confidentiality; the auditor should not disclose client information to third parties without client consent unless there is a legal or professional right or duty to disclose.

Explanation. The ICAI Code of Ethics and SA 230 require the auditor to maintain confidentiality of client information. Audit documentation should not be used for a purpose unrelated to the engagement without client consent, except where there is a legal or professional right or duty to disclose. Sharing with the firm's tax department for an unrelated client is a breach, even if the client's name is not disclosed, because the underlying information remains confidential.

Where it goes wrong. Students may think internal use within the same firm is always permitted, ignoring the need for client consent and the purpose limitation.

Authority. ICAI Code of Ethics; SA 230

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

Documents such as the memorandum and articles of association, old board resolutions, and PAN card were placed in the current audit file. What is the correct classification under audit documentation practice?

1. These documents have continuing relevance across years and should ordinarily be kept in the permanent audit file, not the current audit file. (correct answer)
2. All documents must be kept in the current audit file because the permanent file is only for documents created after the audit report date.
3. These documents should be destroyed after the current year's audit because they are more than seven years old.
4. These documents need not be retained at all because they are public documents available from the Registrar of Companies.

Answer: A — These documents have continuing relevance across years and should ordinarily be kept in the permanent audit file, not the current audit file.

Explanation. Audit documentation is often divided into a permanent audit file and a current audit file. The permanent file contains documents of continuing relevance, such as the memorandum and articles of association, important contracts, and board resolutions that affect future audits. The current file contains documentation for the specific audit period. Placing permanent documents in the current file is improper because it hinders efficient retrieval and continuity.

Where it goes wrong. Students may not distinguish between permanent and current files and assume all documents belong in the current year's file.

Authority. SA 230; SQC 1

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

Scenario. M/s K. Mehta & Co. is the statutory auditor of Suryodaya Sugar Mills Ltd, a listed company, for FY 2025-26. The auditor's report is dated 25 August 2026. The engagement team, led by CA Kabir Mehta, assembled the final audit file on 20 November 2026. While reviewing the file, CA Kabir discovers that the team had shared working papers containing the company's revenue projections and a pending litigation schedule with a bank during a loan appraisal for the company, without obtaining any written consent from Suryodaya Sugar Mills. A junior article assistant had also taken some working papers home to complete documentation and left them in a taxi; they were never recovered. The permanent audit file is missing the company's memorandum and articles of association, though these are filed in the current audit file. The firm plans to retain the audit file for six years from the date of the auditor's report. CA Kabir is also aware that a former partner of the firm, who left two years ago, has claimed that the audit documentation belongs to him personally and has demanded access to certain working papers. CA Kabir seeks advice on the requirements of SQC 1, SA 230 and the ICAI Code of Ethics.

The final audit file for Suryodaya Sugar Mills was assembled on 20 November 2026, with the audit report dated 25 August 2026. What is the compliance status under SQC 1?

1. Compliant, because the assembly was completed within 90 days of the auditor's report date.
2. Compliant, because the assembly was completed before the seven-year retention period ended.
3. Non-compliant, because the final audit file should ordinarily be assembled within 60 days of the auditor's report date, and 20 November 2026 exceeds this period. (correct answer)
4. Non-compliant only if the file contains documents prepared after the report date; otherwise, the assembly date is irrelevant.

Answer: C — Non-compliant, because the final audit file should ordinarily be assembled within 60 days of the auditor's report date, and 20 November 2026 exceeds this period.

Explanation. SQC 1 requires firms to establish policies for timely completion of the assembly of final audit files. An appropriate time limit is ordinarily not more than 60 days after the date of the auditor's report. From 25 August 2026 to 20 November 2026 is 87 days, exceeding the 60-day limit. The assembly date is relevant regardless of whether documents were prepared after the report date.

Where it goes wrong. Students may think the deadline is 90 days or that the deadline only matters if new documents are added.

Authority. SQC 1

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

Working papers containing revenue projections and a pending litigation schedule were shared with a bank during a loan appraisal without written client consent. Which statement is correct under the ICAI Code of Ethics?

1. Sharing is permitted because a bank is a third party with a legitimate interest in the company's financial position.
2. Sharing is a breach of confidentiality unless the client has consented or there is a legal or professional right or duty to disclose; the auditor should obtain written consent before sharing. (correct answer)
3. Sharing is permitted because revenue projections are not confidential once they are given to the auditor.
4. Sharing is permitted only if the bank agrees not to disclose the information to anyone else; no client consent is needed.

Answer: B — Sharing is a breach of confidentiality unless the client has consented or there is a legal or professional right or duty to disclose; the auditor should obtain written consent before sharing.

Explanation. The ICAI Code of Ethics and SA 230 require confidentiality of client information. Disclosing working papers to a bank without the client's consent is a breach unless there is a legal or professional right or duty to disclose. The auditor should obtain written consent from the client before sharing audit documentation with third parties, even for a loan appraisal.

Where it goes wrong. Students may think third-party sharing is acceptable if the third party is a bank or if the bank agrees to keep it confidential.

Authority. ICAI Code of Ethics; SA 230

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

A junior article assistant took working papers home and left them in a taxi; they were never recovered. Which SQC 1 requirement has been violated?

1. The requirement to assemble the audit file within 60 days of the report date.
2. The requirement to retain audit documentation for seven years.
3. The requirement to document the auditor's basis for conclusions.
4. The requirement for safe custody and confidentiality of audit documentation; the firm must maintain proper safeguards to protect documentation from loss or unauthorized access. (correct answer)

Answer: D — The requirement for safe custody and confidentiality of audit documentation; the firm must maintain proper safeguards to protect documentation from loss or unauthorized access.

Explanation. SQC 1 requires firms to establish policies and procedures for maintaining the confidentiality and safe custody of audit documentation. Allowing working papers to be taken home and lost violates these requirements. The incident also creates a risk of breaching client confidentiality. The other options relate to different requirements.

Where it goes wrong. Students may focus only on confidentiality and miss the safe custody requirement, or they may think the 60-day assembly rule is the only SQC 1 requirement.

Authority. SQC 1

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

The permanent audit file is missing the memorandum and articles of association, which are filed in the current audit file. The firm plans to retain the audit file for six years from the date of the auditor's report. What is the correct position?

1. Both practices are improper: permanent documents should be in the permanent file, and retention should ordinarily be no shorter than seven years from the date of the auditor's report. (correct answer)
2. Both practices are acceptable: the location of documents is a matter of convenience, and six years is a reasonable retention period.
3. Placing the memorandum in the current file is acceptable, but retention must be at least ten years.
4. Retention of six years is acceptable, but the permanent file must contain all documents older than five years.

Answer: A — Both practices are improper: permanent documents should be in the permanent file, and retention should ordinarily be no shorter than seven years from the date of the auditor's report.

Explanation. SQC 1 requires a retention period ordinarily no shorter than seven years from the date of the auditor's report. Six years is therefore non-compliant. Good practice requires permanent documents of continuing relevance to be kept in the permanent audit file, not the current audit file. Both practices in the scenario are improper.

Where it goes wrong. Students may underestimate the retention period or consider permanent versus current file classification a matter of convenience.

Authority. SQC 1

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

Scenario. Under SQC 1, who owns the audit documentation when the engagement is conducted by a firm of Chartered Accountants?

Under SQC 1, who owns the audit documentation when the engagement is conducted by a firm of Chartered Accountants?

1. The client, because the documentation relates to the client's financial statements.
2. The engagement partner personally, because the partner signs the auditor's report.
3. The bank that provided the loan, because it may rely on the examined financial statements.
4. The audit firm, unless otherwise specified by law or regulation; audit documentation is the property of the auditor. (correct answer)

Answer: D — The audit firm, unless otherwise specified by law or regulation; audit documentation is the property of the auditor.

Explanation. SQC 1 provides that, unless otherwise specified by law or regulation, audit documentation is the property of the auditor. When the audit is conducted by a firm, the documentation belongs to the firm, not to the client, the engagement partner personally, or a third party such as a bank.

Where it goes wrong. Students may think the client owns the file or that the signing partner owns it personally rather than the firm.

Authority. SQC 1

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

Scenario. What is the ordinary minimum retention period for audit engagement documentation under SQC 1?

What is the ordinary minimum retention period for audit engagement documentation under SQC 1?

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

Answer: B — 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 policies for retention of engagement documentation. 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 do not meet the ordinary requirement.

Where it goes wrong. Students may confuse the retention period with the assembly period or use the balance sheet date or AGM date as the starting point.

Authority. SQC 1

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

Scenario. Which of the following is an example of a document that would ordinarily be kept in the permanent audit file?

Which of the following is an example of a document that would ordinarily be kept in the permanent audit file?

1. The memorandum and articles of association, important contracts, and board resolutions of continuing relevance. (correct answer)
2. The current year's bank reconciliation statements and debtors' ageing schedule.
3. The current year's sales invoices selected for testing.
4. The current year's management representation letter.

Answer: A — The memorandum and articles of association, important contracts, and board resolutions of continuing relevance.

Explanation. The permanent audit file contains documents of continuing relevance across multiple audits, such as the memorandum and articles of association, important contracts, and long-term board resolutions. Current year's bank reconciliations, debtors' ageing, selected invoices, and management representations are specific to the current audit and belong in the current audit file.

Where it goes wrong. Students may classify current-year working papers as permanent because they are important, ignoring the continuing relevance criterion.

Authority. SA 230; SQC 1

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

Scenario. Which of the following is an exception to the auditor's duty of confidentiality under the ICAI Code of Ethics?

Which of the following is an exception to the auditor's duty of confidentiality under the ICAI Code of Ethics?

1. Disclosing client information to a friend because the information is interesting and not publicly known.
2. Sharing working papers with another client because the other client is in the same industry.
3. Disclosing client information when there is a legal or professional right or duty to disclose, such as under a court order or regulatory requirement. (correct answer)
4. Using client information for the auditor's personal investment decisions without client consent.

Answer: C — Disclosing client information when there is a legal or professional right or duty to disclose, such as under a court order or regulatory requirement.

Explanation. The ICAI Code of Ethics permits disclosure of confidential client information when there is a legal or professional right or duty to disclose, for example under a court order, regulatory requirement, or legal proceedings. Disclosures for personal interest, gossip, or unrelated client work are not permitted.

Where it goes wrong. Students may think confidentiality is absolute or that disclosure is permitted for any seemingly legitimate reason without a legal or professional basis.

Authority. ICAI Code of Ethics

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

Scenario. The audit firm's quality control partner finds that the audit file was assembled 75 days after the auditor's report date. Which action is most appropriate?

The audit firm's quality control partner finds that the audit file was assembled 75 days after the auditor's report date. Which action is most appropriate?

1. No action is needed because the 60-day limit is a recommendation, not a requirement.
2. The firm should treat this as non-compliance with SQC 1 and SA 230, investigate the cause, and implement remedial measures to ensure timely assembly in future engagements. (correct answer)
3. The firm should backdate the assembly completion date to fall within 60 days.
4. The firm should delete the file and start a new assembly to avoid regulatory scrutiny.

Answer: B — The firm should treat this as non-compliance with SQC 1 and SA 230, investigate the cause, and implement remedial measures to ensure timely assembly in future engagements.

Explanation. SQC 1 requires timely assembly, ordinarily within 60 days of the auditor's report date. Missing the deadline is non-compliance. The appropriate response is to investigate, remediate, and strengthen procedures. Backdating or deleting the file would be unethical and non-compliant.

Where it goes wrong. Students may think the 60-day limit is optional or that backdating is an acceptable fix.

Authority. SQC 1

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

Scenario. A former partner of an audit firm claims that the audit documentation belongs to him personally and demands access. How should the firm respond under SQC 1?

A former partner of an audit firm claims that the audit documentation belongs to him personally and demands access. How should the firm respond under SQC 1?

1. Provide access because a former partner has an absolute right to all documentation he worked on.
2. Destroy the documentation to avoid the dispute because the former partner is no longer with the firm.
3. Provide the complete file to the former partner because he signed the auditor's report for some years.
4. Refuse personal ownership; audit documentation is the property of the firm, and access by former personnel should be governed by the firm's confidentiality and custody policies. (correct answer)

Answer: D — Refuse personal ownership; audit documentation is the property of the firm, and access by former personnel should be governed by the firm's confidentiality and custody policies.

Explanation. Under SQC 1, audit documentation is the property of the auditor, which in a firm context means the firm, not an individual partner. A former partner does not personally own the documentation. Access should be controlled under the firm's confidentiality and custody policies. Destroying the documentation would violate retention requirements.

Where it goes wrong. Students may think the signing partner personally owns the documentation or that a former partner has an unrestricted right of access.

Authority. SQC 1

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

Scenario. After the final audit file has been assembled, which action is permitted under SA 230 and SQC 1?

After the final audit file has been assembled, which action is permitted under SA 230 and SQC 1?

1. Deleting any working paper that is not relevant to the final conclusion at any time during the retention period.
2. Performing new audit procedures after the report date and adding them to the file if they support the opinion.
3. Making administrative changes during final assembly, such as sorting, cross-referencing, and signing completion checklists, but not performing new audit procedures or deleting documentation before the retention period ends. (correct answer)
4. Discarding superseded documentation after the retention period ends without any documentation of the disposal.

Answer: C — Making administrative changes during final assembly, such as sorting, cross-referencing, and signing completion checklists, but not performing new audit procedures or deleting documentation before the retention period ends.

Explanation. SA 230 allows administrative changes during final assembly, such as deleting superseded documentation, sorting and cross-referencing, and signing completion checklists. After final assembly, the auditor must not delete or discard documentation before the retention period ends. New audit procedures after the report date are not permitted as part of final assembly.

Where it goes wrong. Students may think any document can be deleted after the report date or that new audit procedures can be performed to strengthen the file.

Authority. SA 230; SQC 1