Completion and Review - Test 3: answer key

Question 1 · 2 marks · Chapter 7: Completion and Review · medium

Scenario. M/s K. Mehta & Co. is the statutory auditor of Alpha Infotech Ltd, a listed company, for FY 2025-26. During the audit, the team identified several misstatements. Inventory costing ₹45 lakh was overvalued due to an error in overhead absorption; management corrected this after it was communicated. A revenue misstatement of ₹12 lakh arising from improper cut-off was also communicated, but management refused to correct it, arguing it was immaterial. Materiality for the financial statements as a whole was determined at ₹30 lakh. The auditor also requested a written representation confirming the valuation of a major trade receivable of ₹80 lakh. Management refused, citing an ongoing dispute with the customer and stating that it had already provided all relevant records. This is the first time in the engagement that a requested representation has been declined. The engagement partner, CA Mehta, has communicated the uncorrected revenue misstatement to those charged with governance but is unsure whether the refusal to provide the written representation on the trade receivable requires a disclaimer of opinion or another modification. He is also concerned about the adequacy of documentation regarding the misstatements and the written representation. The audit committee has asked for a summary of uncorrected misstatements and the auditor's conclusions on their materiality. The audit report is expected to be signed on 30 June 2026.

Based on the materiality of ₹30 lakh and the uncorrected misstatement of ₹12 lakh, what is the auditor's primary responsibility under SA 450?

1. Accumulate the misstatement and communicate it to management only; no further action is needed because it is below materiality.
2. Adjust the financial statements directly because the auditor has identified a misstatement.
3. Evaluate whether the uncorrected misstatement, individually or in aggregate, is material, and communicate it to those charged with governance with its effect on the opinion. (correct answer)
4. Disclaim an opinion because management refused to correct the misstatement.

Answer: C — Evaluate whether the uncorrected misstatement, individually or in aggregate, is material, and communicate it to those charged with governance with its effect on the opinion.

Explanation. SA 450 requires the auditor to evaluate whether uncorrected misstatements are material individually or in aggregate and to communicate them to those charged with governance, including their effect on the auditor's report. The auditor cannot adjust the financial statements; that is management's responsibility. A disclaimer is not automatic merely because management refuses to correct a misstatement. The correct response is evaluation and communication.

Where it goes wrong. Students often ignore below-materiality misstatements or think the auditor can adjust the accounts; SA 450 requires aggregation and communication.

Authority. SA 450

Question 2 · 2 marks · Chapter 7: Completion and Review · hard

Management refuses to provide the written representation about the valuation of the major trade receivable. Under SA 580, what should the auditor do first?

1. Discuss the matter with management, re-evaluate management integrity, and determine the effect on the reliability of representations and the audit opinion. (correct answer)
2. Issue a disclaimer of opinion automatically.
3. Treat it as a scope limitation and issue a qualified opinion only.
4. Ignore the refusal because it relates to a specific asset, not management's fundamental responsibilities.

Answer: A — Discuss the matter with management, re-evaluate management integrity, and determine the effect on the reliability of representations and the audit opinion.

Explanation. SA 580 requires the auditor to discuss a requested representation that has not been provided, re-evaluate management's integrity, and evaluate the effect on the reliability of representations and audit evidence generally. The auditor then determines the possible effect on the opinion under SA 705. Automatic disclaimer applies only when management refuses the fundamental representations about preparation of financial statements and completeness of information and transactions.

Where it goes wrong. Students often think any refusal mandates a disclaimer; SA 580 distinguishes between fundamental and other requested representations.

Authority. SA 580; SA 705

Question 3 · 2 marks · Chapter 7: Completion and Review · medium

What is the appropriate date for the written representation letter in this engagement?

1. 31 March 2026, the balance sheet date.
2. 1 April 2026, immediately after the year-end.
3. Any date before the audit report is signed.
4. 30 June 2026, the date of the auditor's report or as near as practicable but not after. (correct answer)

Answer: D — 30 June 2026, the date of the auditor's report or as near as practicable but not after.

Explanation. SA 580 requires written representations to be dated as near as practicable to, but not after, the date of the auditor's report. The auditor's opinion cannot be expressed before the date of the written representations. The balance sheet date is inappropriate because representations must cover subsequent events up to the report date. Any date before the report is too vague and does not meet the 'as near as practicable' requirement.

Where it goes wrong. Students may select the balance sheet date or any pre-report date; SA 580 ties the representation date closely to the report date.

Authority. SA 580

Question 4 · 2 marks · Chapter 7: Completion and Review · hard

What documentation is required under SA 450 regarding the misstatements identified in this audit?

1. Only the corrected misstatements need to be documented; uncorrected misstatements are not required.
2. Documentation must include the amount below which misstatements are clearly trivial, all misstatements accumulated and whether corrected, and the auditor's conclusion on materiality. (correct answer)
3. Documentation is required only for misstatements communicated to those charged with governance.
4. Documentation is not required if management corrects the misstatement.

Answer: B — Documentation must include the amount below which misstatements are clearly trivial, all misstatements accumulated and whether corrected, and the auditor's conclusion on materiality.

Explanation. SA 450 specifically requires audit documentation to include the amount below which misstatements would be regarded as clearly trivial, all misstatements accumulated during the audit and whether they have been corrected, and the auditor's conclusion as to whether uncorrected misstatements are material, individually or in aggregate, with the basis for that conclusion. Documentation of only corrected or only communicated items is insufficient.

Where it goes wrong. Students may think documentation is limited to corrected items; SA 450 requires a complete record of accumulated misstatements and the materiality conclusion.

Authority. SA 450

Question 5 · 2 marks · Chapter 7: Completion and Review · medium

Scenario. M/s V. Raman & LLP is the statutory auditor of Suryodaya Sugar Mills Ltd, an unlisted public company, for FY 2025-26. The audit team identified significant deficiencies in internal control over inventory valuation, including lack of periodic physical verification and inadequate documentation of overhead absorption. The team also identified a material misstatement in the valuation of closing inventory of ₹25 lakh, which management corrected after it was communicated. The auditor communicated the significant deficiency in internal control to those charged with governance in writing. During the audit, CA Raman had several oral discussions with the audit committee regarding the timing of the audit, the significant risks identified, and the auditor's responsibilities. He also communicated the corrected misstatement and the significant deficiency orally to the managing director before the audit committee meeting. The company is not listed, but it has an audit committee that oversees financial reporting. CA Raman is finalising the audit report and wants to ensure compliance with SA 260 and SA 450 regarding communication and documentation. He is also unsure whether the oral communications need to be documented and whether communication of the auditor's responsibilities and planned scope is required in every audit, irrespective of the size of the entity. The audit committee has requested a written summary of all significant findings. CA Raman is concerned that some matters were communicated only orally and wants to know if a written communication is mandatory for all significant findings.

Which of the following matters is CA Raman required to communicate to those charged with governance under SA 260?

1. The auditor's responsibilities in relation to the financial statement audit and an overview of the planned scope and timing. (correct answer)
2. Only the significant deficiencies in internal control.
3. Only the uncorrected misstatements.
4. Only matters related to auditor independence.

Answer: A — The auditor's responsibilities in relation to the financial statement audit and an overview of the planned scope and timing.

Explanation. SA 260 requires the auditor to communicate the auditor's responsibilities in relation to the financial statement audit, an overview of the planned scope and timing of the audit, significant findings from the audit, and, for listed entities, independence matters. Limiting communication to only internal control deficiencies, uncorrected misstatements, or independence would not satisfy SA 260's broader requirements.

Where it goes wrong. Students may focus on one category of communication and miss the full scope of SA 260 matters.

Authority. SA 260

Question 6 · 2 marks · Chapter 7: Completion and Review · hard

The auditor communicated some matters orally to the audit committee. What documentation is required under SA 260?

1. No documentation is required for oral communications.
2. A copy of the audit committee minutes is sufficient.
3. The auditor must document the matters communicated orally, including when and to whom they were communicated. (correct answer)
4. Oral communications must be converted into written communications and a copy retained.

Answer: C — The auditor must document the matters communicated orally, including when and to whom they were communicated.

Explanation. SA 260 requires that where matters required to be communicated are communicated orally, the auditor shall include them in the audit documentation, along with when and to whom they were communicated. Written communications require retaining a copy. Audit committee minutes may not capture all matters communicated by the auditor and are not a substitute for the auditor's own documentation.

Where it goes wrong. Students may think oral communication needs no record or that minutes suffice; SA 260 specifically requires the auditor to document oral communications.

Authority. SA 260

Question 7 · 2 marks · Chapter 7: Completion and Review · medium

The company is unlisted but has an audit committee. Is the auditor required to communicate about independence under SA 260?

1. Yes, independence communication is required for all entities.
2. No, independence communication is required only for listed entities. (correct answer)
3. Yes, but only if the audit committee requests it.
4. No, because the company is unlisted and has no statutory audit committee.

Answer: B — No, independence communication is required only for listed entities.

Explanation. SA 260 requires communication about auditor independence only in the case of listed entities. For unlisted entities, independence matters are not a mandatory communication under SA 260, although the auditor must still comply with ethical requirements. The existence of an audit committee in an unlisted company does not by itself trigger the listed-entity independence communication requirement.

Where it goes wrong. Students may assume that having an audit committee makes the entity subject to listed-entity independence communication; SA 260 ties this to listed status.

Authority. SA 260

Question 8 · 2 marks · Chapter 7: Completion and Review · hard

Which of the following is a significant finding from the audit that should be communicated to those charged with governance under SA 260?

1. The detailed audit programme and sampling methodology.
2. The names of all customers confirmed during the audit.
3. The internal working papers of the audit team.
4. The auditor's views about significant qualitative aspects of accounting practices, including accounting policies and estimates. (correct answer)

Answer: D — The auditor's views about significant qualitative aspects of accounting practices, including accounting policies and estimates.

Explanation. SA 260 requires communication of the auditor's views about significant qualitative aspects of the entity's accounting practices, including accounting policies, accounting estimates, and financial statement disclosures. Detailed audit programmes, customer names, and internal working papers are not matters for communication with those charged with governance. The focus is on significant findings relevant to their oversight role.

Where it goes wrong. Students may confuse detailed audit documentation with matters requiring communication; SA 260 focuses on significant findings, not the audit file.

Authority. SA 260

Question 9 · 2 marks · Chapter 7: Completion and Review · medium

Scenario. Under SA 580, which of the following fundamental written representations, if not provided, requires a disclaimer of opinion?

Under SA 580, which of the following fundamental written representations, if not provided, requires a disclaimer of opinion?

1. Representation about the selection and application of accounting policies.
2. Representation that management has fulfilled its responsibility for preparation of financial statements and provided all relevant information and that all transactions are recorded. (correct answer)
3. Representation about the appropriateness of the going concern basis.
4. Representation about the completeness of related party disclosures.

Answer: B — Representation that management has fulfilled its responsibility for preparation of financial statements and provided all relevant information and that all transactions are recorded.

Explanation. SA 580 requires a disclaimer of opinion if management does not provide the written representations about its responsibilities for the preparation of the financial statements and about information provided and completeness of transactions, or if the auditor concludes there is sufficient doubt about management integrity such that those representations are unreliable. Other representations, such as accounting policies or going concern, do not trigger automatic disclaimer.

Where it goes wrong. Students may think any missing representation requires disclaimer; SA 580 reserves that consequence for the fundamental management-responsibility representations.

Authority. SA 580

Question 10 · 2 marks · Chapter 7: Completion and Review · hard

Scenario. Written representations are dated 15 June 2026, and the auditor's report is dated 30 June 2026. Is this acceptable under SA 580?

Written representations are dated 15 June 2026, and the auditor's report is dated 30 June 2026. Is this acceptable under SA 580?

1. Yes, as long as the representation is dated as near as practicable to, but not after, the report date; 15 June may be acceptable if near enough. (correct answer)
2. No, the representation must be dated exactly the same as the report date.
3. No, the representation must be dated after the report date.
4. Yes, the representation can be dated any time during the audit.

Answer: A — Yes, as long as the representation is dated as near as practicable to, but not after, the report date; 15 June may be acceptable if near enough.

Explanation. SA 580 requires the date of written representations to be as near as practicable to, but not after, the date of the auditor's report. It does not require the precise same date. A date 15 days before the report may be acceptable if it is as near as practicable in the circumstances. A date after the report would be inconsistent, and any time during the audit is too broad.

Where it goes wrong. Students may think the representation must be dated exactly on the report date or can be any earlier date; SA 580 requires proximity to the report date.

Authority. SA 580

Question 11 · 2 marks · Chapter 7: Completion and Review · medium

Scenario. Management refuses to provide a written representation about the completeness of transactions. What is the auditor's required action under SA 580?

Management refuses to provide a written representation about the completeness of transactions. What is the auditor's required action under SA 580?

1. Issue a qualified opinion.
2. Take no action because it is not a fundamental representation.
3. Disclaim an opinion. (correct answer)
4. Issue an adverse opinion.

Answer: C — Disclaim an opinion.

Explanation. Completeness of transactions is part of the fundamental management-responsibility representations under SA 580. If management does not provide this written representation, the auditor shall disclaim an opinion on the financial statements in accordance with SA 705. A qualified opinion or adverse opinion is not the prescribed response for this specific refusal.

Where it goes wrong. Students may choose a qualified opinion or adverse opinion; SA 580 specifically mandates disclaimer for refusal of the fundamental completeness representation.

Authority. SA 580; SA 705

Question 12 · 2 marks · Chapter 7: Completion and Review · hard

Scenario. Under SA 450, what is the threshold for accumulating misstatements identified during the audit?

Under SA 450, what is the threshold for accumulating misstatements identified during the audit?

1. All misstatements, regardless of amount.
2. Only misstatements above materiality.
3. Only misstatements communicated by management.
4. All misstatements other than those that are clearly trivial. (correct answer)

Answer: D — All misstatements other than those that are clearly trivial.

Explanation. SA 450 requires the auditor to accumulate misstatements identified during the audit, other than those that are clearly trivial. The auditor does not accumulate only those above materiality, nor only management-communicated items. Clearly trivial misstatements are excluded to avoid accumulating insignificant items that would not affect the financial statements.

Where it goes wrong. Students may think only material misstatements are accumulated; SA 450 uses the 'clearly trivial' threshold, not materiality.

Authority. SA 450

Question 13 · 2 marks · Chapter 7: Completion and Review · medium

Scenario. The auditor identifies a misstatement of ₹5 lakh in a class of transactions. Materiality is ₹20 lakh. The auditor should:

The auditor identifies a misstatement of ₹5 lakh in a class of transactions. Materiality is ₹20 lakh. The auditor should:

1. Accumulate it and consider whether, in aggregate with other misstatements, it could be material. (correct answer)
2. Ignore it because it is below materiality.
3. Immediately issue a qualified opinion.
4. Adjust the financial statements.

Answer: A — Accumulate it and consider whether, in aggregate with other misstatements, it could be material.

Explanation. SA 450 requires the auditor to accumulate misstatements other than clearly trivial ones and evaluate whether they are material individually or in aggregate. A ₹5 lakh misstatement below ₹20 lakh materiality is not ignored; it must be considered with other accumulated misstatements. The auditor cannot adjust the financial statements, and a qualified opinion is not automatic.

Where it goes wrong. Students often ignore below-materiality misstatements; SA 450 requires aggregation because individually immaterial misstatements may be material in aggregate.

Authority. SA 450

Question 14 · 2 marks · Chapter 7: Completion and Review · hard

Scenario. Under SA 450, if management refuses to correct a misstatement, the auditor shall:

Under SA 450, if management refuses to correct a misstatement, the auditor shall:

1. Immediately disclaim an opinion.
2. Obtain an understanding of management's reasons and take that into account when evaluating whether the financial statements are free from material misstatement. (correct answer)
3. Report the matter to the regulatory authority.
4. Adjust the financial statements.

Answer: B — Obtain an understanding of management's reasons and take that into account when evaluating whether the financial statements are free from material misstatement.

Explanation. SA 450 requires the auditor, when management refuses to correct a misstatement, to obtain an understanding of management's reasons for not making the correction and to take that understanding into account when evaluating whether the financial statements as a whole are free from material misstatement. Immediate disclaimer, regulatory reporting, or auditor adjustment is not the prescribed response.

Where it goes wrong. Students may think refusal automatically requires disclaimer or reporting; SA 450 requires understanding reasons and evaluating materiality.

Authority. SA 450

Question 15 · 2 marks · Chapter 7: Completion and Review · medium

Scenario. Which of the following is a matter to be communicated to those charged with governance under SA 260?

Which of the following is a matter to be communicated to those charged with governance under SA 260?

1. The auditor's personal opinion about management's competence.
2. The detailed audit working papers.
3. The auditor's views about significant qualitative aspects of accounting practices. (correct answer)
4. The names of all employees interviewed.

Answer: C — The auditor's views about significant qualitative aspects of accounting practices.

Explanation. SA 260 requires communication of the auditor's views about significant qualitative aspects of the entity's accounting practices, including accounting policies, accounting estimates, and financial statement disclosures. Personal opinions about management competence, detailed working papers, and employee names are not matters specified for communication under SA 260.

Where it goes wrong. Students may select personal opinions or detailed documentation; SA 260 focuses on significant findings relevant to governance oversight.

Authority. SA 260

Question 16 · 2 marks · Chapter 7: Completion and Review · hard

Scenario. Under SA 260, when should communication with those charged with governance take place?

Under SA 260, when should communication with those charged with governance take place?

1. Only at the end of the audit.
2. Only when a material misstatement is found.
3. Only in writing.
4. On a timely basis. (correct answer)

Answer: D — On a timely basis.

Explanation. SA 260 requires the auditor to communicate with those charged with governance on a timely basis. Communication is not limited to the end of the audit or to situations involving material misstatements. While certain matters must be communicated in writing, oral communication is permitted for other matters, and timeliness is a fundamental requirement.

Where it goes wrong. Students may think communication occurs only at completion or only in writing; SA 260 emphasises timely communication throughout the audit.

Authority. SA 260

Question 17 · 2 marks · Chapter 7: Completion and Review · medium

Scenario. For a listed entity, what must the auditor communicate regarding independence under SA 260?

For a listed entity, what must the auditor communicate regarding independence under SA 260?

1. A statement that the engagement team and firm have complied with relevant ethical requirements regarding independence. (correct answer)
2. The names of all clients of the firm.
3. The audit fee only.
4. The personal financial interests of all staff.

Answer: A — A statement that the engagement team and firm have complied with relevant ethical requirements regarding independence.

Explanation. SA 260 requires the auditor of a listed entity to communicate a statement that the engagement team, the firm, and, where applicable, network firms have complied with relevant ethical requirements regarding independence. The communication also includes relationships and other matters that may bear on independence and related safeguards. Client names, audit fee only, or all staff financial interests are not the required statement.

Where it goes wrong. Students may think only fees are communicated; SA 260 requires a broader independence statement and relevant relationships.

Authority. SA 260

Question 18 · 2 marks · Chapter 7: Completion and Review · hard

Scenario. Under SA 580, written representations are:

Under SA 580, written representations are:

1. Sufficient appropriate audit evidence on their own.
2. Necessary audit evidence but not sufficient appropriate audit evidence on their own. (correct answer)
3. Not audit evidence.
4. Only required for listed entities.

Answer: B — Necessary audit evidence but not sufficient appropriate audit evidence on their own.

Explanation. SA 580 states that written representations are necessary audit evidence but do not provide sufficient appropriate audit evidence on their own about any of the matters with which they deal. The auditor must still obtain other audit evidence. Written representations are required for all audits, not only listed entities, and they are audit evidence.

Where it goes wrong. Students may treat written representations as sufficient on their own or as unnecessary; SA 580 positions them as necessary but not sufficient.

Authority. SA 580

Question 19 · 2 marks · Chapter 7: Completion and Review · medium

Scenario. If written representations are inconsistent with other audit evidence, the auditor shall:

If written representations are inconsistent with other audit evidence, the auditor shall:

1. Ignore the inconsistency.
2. Rely on the written representation.
3. Perform audit procedures to attempt to resolve the matter, and if unresolved, reconsider management integrity and the effect on the opinion. (correct answer)
4. Immediately disclaim an opinion.

Answer: C — Perform audit procedures to attempt to resolve the matter, and if unresolved, reconsider management integrity and the effect on the opinion.

Explanation. SA 580 requires the auditor, where written representations are inconsistent with other audit evidence, to perform audit procedures to attempt to resolve the matter. If the matter remains unresolved, the auditor shall reconsider the assessment of management's competence, integrity, ethical values, or diligence, and determine the effect on the reliability of representations and audit evidence generally, including the possible effect on the opinion.

Where it goes wrong. Students may choose to ignore the inconsistency or immediately disclaim; SA 580 requires an attempt to resolve it first.

Authority. SA 580

Question 20 · 2 marks · Chapter 7: Completion and Review · hard

Scenario. Under SA 450, the auditor shall request a written representation from management regarding:

Under SA 450, the auditor shall request a written representation from management regarding:

1. That all misstatements have been corrected.
2. That the auditor's work is complete.
3. That the financial statements are free from all misstatements.
4. That the effects of uncorrected misstatements are immaterial, individually and in aggregate, with a summary attached. (correct answer)

Answer: D — That the effects of uncorrected misstatements are immaterial, individually and in aggregate, with a summary attached.

Explanation. SA 450 requires the auditor to request a written representation from management and, where appropriate, those charged with governance that they believe the effects of uncorrected misstatements are immaterial, individually and in aggregate, to the financial statements as a whole. A summary of such items must be included in or attached to the written representation. The representation is not that all misstatements have been corrected or that the statements are free from all misstatements.

Where it goes wrong. Students may think the representation is about correction or absolute freedom from misstatement; SA 450 focuses on the immateriality of uncorrected items.

Authority. SA 450