CHAPTER 6

AUDIT
DOCUMENTATION

SA 230- Audit Documentation

Question 1
Audit documentation provides evidence of the auditor’s basis for a conclusion about the
achievement of the overall objectives of the auditor and evidence that the audit was planned and
performed in accordance with SAs and applicable legal and regulatory requirements. Explain
stating clearly purpose of audit documentation. (MTP 5 Marks Aug ’18 & Oct ‘18)
OR
Audit documentation serves a number of purposes. List such purposes. (MTP 3 Marks March ‘21)
OR
A new team member of GSR & Co., the auditors of Esteem Limited, was of the view that Audit
Documentation would not serve any purpose at any stage of Audit. Explain. (RTP May ’21)
OR
CAM is the engagement partner of S Ltd. He has instructed his audit team to maintain proper
audit documentation. The audit team members are not sure about the purpose for which the
documentation should be made. Explain the various purposes of audit documentation with
reference to SA 230. (PYP 3 Marks Nov 22)
OR
What do you mean by Audit Documentation? Also explain the nature and purpose of audit
documentation. (RTP May ’19)
OR
Discuss the meaning and nature of Audit Documentation (RTP Nov ‘19)
OR
Discuss any two purposes of audit documentation (New SM)
OR
SA 230, “Audit Documentation” deals with the auditor’s responsibility to prepare audit
documentation for an audit of financial statements. Such audit documentation serves various
purposes. Explain. (RTP May ’23)

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Answer 1
Audit documentation: SA 230 on “Audit Documentation”, audit documentation refers to the record
of audit procedures performed, relevant audit evidence obtained, and conclusions the auditor reached.
(terms such as “working papers” or “work papers” are also sometimes used.)
Nature of Audit Documentation
Audit documentation provides:
(a) evidence of the auditor’s basis for a conclusion about the achievement of the overall objectives of
the auditor; and
(b) evidence that the audit was planned and performed in accordance with SAs and applicable legal
and regulatory requirements.
Purpose of Audit Documentation
The following are the purpose of Audit documentation:
1. Assisting the engagement team to plan and perform the audit.
2. Assisting members of the engagement team to direct and supervise the audit work, and to discharge
their review responsibilities.
3. Enabling the engagement team to be accountable for its work.
4. Retaining a record of matters of continuing significance to future audits.
5. Enabling the conduct of quality control reviews and inspections.
6. Enabling the conduct of external inspections in accordance with applicable legal, regulatory or
other requirements.
From the above, it can be concluded that Audit documentation serves a number of purposes and hence
it would be incorrect to say that audit documentation would not serve any purpose at any stage of audit

Question 2
Discuss with reference to SA-230, factors affecting form, contents and extent of audit
documentation. (MTP 4 Marks April 19)
OR
The form, content and extent of audit documentation depend on factors such as the size and
complexity of the entity, the nature of the audit procedures to be performed etc. Explain in
detail. (RTP Nov 18, New SM)
Answer 2
Form, Content and Extent of Audit Documentation: Working papers should record the audit plan,
nature, timing and extent of auditing procedures performed, and the conclusions drawn from the
evidence obtained.

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The form, content and extent of working papers depend on factors such as:
• The size and complexity of the entity.
• The nature of the audit procedures to be performed.
• The identified risks of material misstatement.
• The significance of the audit evidence obtained.
• The nature and extent of exceptions identified.
• The need to document a conclusion or the basis for a conclusion not readily determinable from the
documentation of the work performed or audit evidence obtained.
• The audit methodology and tools used.

Question 3
“Completion Memorandum” is helpful as part of the audit documentation. Explain. (MTP 3
Marks May 20, PYP 3 Marks, May ’19, New SM)
Answer 3
Completion Memorandum or Audit Documentation Summary.
The auditor may consider it helpful to prepare and retain as part of the audit documentation a summary
(sometimes known as a completion memorandum) that describes-
(i) the significant matters identified during the audit.
(ii) how they were addressed.
Such a summary may facilitate effective and efficient review and inspection of the audit documentation,
particularly for large and complex audits. Further, the preparation of such a summary may assist
auditor’s consideration of the significant matters. It may also help the auditor to consider whether
there is any individual relevant SA objective that the auditor cannot achieve that would prevent the
auditor from achieving the overall objectives of the auditor.

Question 4
Give some examples of circumstances in which it is appropriate to prepare audit documentation
relating to the use of professional judgment where the matters and judgments are significant.
(MTP 3 Marks Oct 20)
Answer 4
Some examples of circumstances in which it is appropriate to prepare audit documentation relating to
the use of professional judgment include, where the matters and judgments are significant:

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 AUDIT DOCUMENTATION

• The rationale for the auditor’s conclusion when a requirement provides that the auditor ‘shall
consider’ certain information or factors, and that consideration is significant in the context of the
particular engagement.
• The basis for the auditor’s conclusion on the reasonableness of areas of subjective judgments (for
example, the reasonableness of significant accounting estimates).
• The basis for the auditor’s conclusions about the authenticity of a document when further
investigation (such as making appropriate use of an expert or of confirmation procedures) is
undertaken in response to conditions identified during the audit that caused the auditor to believe
that the document may not be authentic.

Question 5
Examine with reasons (in short) whether the following statement is correct or incorrect:
Audit notes can serve as a guide in framing Audit programme. (MTP 2 Marks April ‘21)
Answer 5
Correct: Audit notes can serve as a guide in framing audit programme in the future as they indicate
the weaknesses in the system of the client which specially need to be watched.

Question 6
Audit documentation provides evidence that the audit complies with SAs. However, it is neither
necessary nor practicable for the auditor to document every matter considered. Further,
it is unnecessary for the auditor to document separately compliance with matters for which
compliance is demonstrated by documents included within the audit file. Explain giving
examples. (MTP 4 Marks Oct ‘21)
Answer 6
Audit documentation provides evidence that the audit complies with SAs. However, it is neither
necessary nor practicable for the auditor to document every matter considered, or professional
judgment made, in an audit. Further, it is unnecessary for the auditor to document separately (as in a
checklist, for example) compliance with matters for which compliance is demonstrated by documents
included within the audit file. For example:
• The existence of an adequately documented audit plan demonstrates that the auditor has planned the audit.
• The existence of a signed engagement letter in the audit file demonstrates that the auditor has
agreed the terms of the audit engagement with management, or where appropriate, those charged
with governance.
• An auditor’s report containing an appropriately qualified opinion demonstrates that the auditor has complied
with the requirement to express a qualified opinion under the circumstances specified in the SAs.

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• In relation to requirements that apply generally throughout the audit, there may be a number of
ways in which compliance with them may be demonstrated within the audit file:
• For example, there may be no single way in which the auditor’s professional skepticism is
documented. But the audit documentation may nevertheless provide evidence of the auditor’s
exercise of professional skepticism in accordance with SAs. Such evidence may include specific
procedures performed to corroborate management’s responses to the auditor’s inquiries.
• Similarly, that the engagement partner has taken responsibility for the direction, supervision and
performance of the audit in compliance with the SAs may be evidenced in a number of ways
within the audit documentation. This may include documentation of the engagement partner’s
timely involvement in aspects of the audit, such as participation in the team discussion required
by SA 315.

Question 7
Electronic payment of Income Tax cannot be made by an assessee from the account of any other
person. (MTP 2 Marks April 22)
Answer 7
Incorrect: Electronic payment of taxes means payment of taxes by way of internet banking facility
or credit or debit cards. The assessee can make electronic payment of taxes also from the account of
any other person. However, the challan for making such payment must clearly indicate the Permanent
Account Number (PAN) of the assessee on whose behalf the payment is made. It is not necessary for
the assessee to make payment of taxes from his own account in an authorized bank.

Question 8
Examine with reasons (in short) whether the following statements are correct or incorrect:
(MTP 2 Marks Sep’22)
The auditor shall prepare audit documentation on a timely basis.
Answer 8
Correct: The auditor shall prepare audit documentation on a timely basis. Preparing sufficient and
appropriate audit documentation on a timely basis helps to enhance the quality of the audit and facilitates
the effective review and evaluation of the audit evidence obtained and conclusions reached before the
auditor’s report is finalised. Documentation prepared after the audit work has been performed is likely
to be less accurate than documentation prepared at the time such work is performed.

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 AUDIT DOCUMENTATION

Question 9
Newton Ltd. has made loans and advances on the basis of following securities to various
borrowers. As an auditor what type of documents can be verified to ensure that the company
holds a legally enforceable security?
(i) Shares and Debentures
(ii) Life Insurance Policy
(iii) Hypothecation of goods. (MTP 3 Marks April ’21 & May 20)
Answer 9
Documents to be seen in case of Securities:
Types of Security Documents etc. to be seen
The scrip and the endorsement thereon of the name of the transferee,
(i) Shares and debentures
in the case of transfer.
Assignment of policy in favour of the lender, duly registered with the
(ii) Life Insurance Policy.
insurer
Deed of hypothecation or other document creating the charge, together
(iii) Hypothecation of goods
with a statement of inventories held at the Balance Sheet date

Question 10
The working papers of the branch auditor are also the property of the Principal Auditor and
the Management of the Company, so they have right to access them. State the relevant SA and
comment. (MTP 3 Marks March ‘21)
Answer 10
Ownership of Working Papers: As per SA 230 “Audit Documentation”, working papers are the
property of the auditor. He may at his discretion, make available portions or extracts from his working
paper to his client. The auditor should adopt reasonable procedures for custody and confidentiality of
his working papers. An auditor is not required to provide the management/ clients or other auditors’
access to his working papers. Main auditor of the company does not have right of access to the
working papers of the branch auditor. In the case of a company, the main auditor has to consider the
report of the branch auditor and has a right to seek clarification and to visit the branch but cannot
ask for the copy of working paper and therefore, the branch auditor is under no compulsion to give
photocopies of his working paper to the principal auditor. From above, it is clear that working papers
of the branch auditor are his property only and neither the Principal auditor not management has right
to access that. Therefore, statement given in the question is incorrect.

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 AUDIT DOCUMENTATION

Question 11
Examine with reasons (in short) whether the following statements are correct or incorrect.
Narrative record is a series of instructions and/or questions which a member of the auditing
staff must follow and/or answer. (MTP 2 Marks March ’23)
Answer 11
Incorrect: Check list is a series of instructions and/or questions which a member of the auditing staff
must follow and/or answer. Narrative record is a complete and exhaustive description of the system
as found in operation by the auditor.

Question 12
Examine with reasons (in short) whether the following statements are correct or incorrect.
The internal control questionnaire is a series of instructions/ questions which a member of the
auditing staff must follow and/or answer. (MTP 2 Marks Oct’22)
Answer 12
Incorrect: Checklist is a series of instructions and/or questions which a member of the auditing staff
must follow and/or answer. Internal control questionnaire is a comprehensive series of questions
concerning internal control. The questionnaire is usually issued to the client and the client is requested
to get it filled by the concerned executives and employees.

Question 13
Examine with reasons (in short) whether the following statements are correct or incorrect:
It is the function of an audit to establish that payments have been made validly to the persons
who are shown to be recipients. (MTP 2 Marks April ‘21)
Answer 13
Correct: It is the function of audit to establish that payments have been made validly to persons who
are shown to be recipients. For checking the validity of a transaction, it is usually necessary to refer
to documentary evidence.

Question 14
An important factor in determining the form, content and extent of audit documentation of
significant matters is the extent of professional judgment exercised in performing the work and
evaluating the results. Explain stating clearly the examples of significant matters (RTP Nov’20).
OR
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Judging the significance of a matter requires an objective analysis of the facts and circumstances.
Documentation of the professional judgments made, where significant, serves to explain the
auditor’s conclusions and to reinforce the quality of the judgment. Explain with the help of
examples. (RTP May ‘19)
Answer 14
Documentation of Significant Matters and Related Significant Professional Judgments
Judging the significance of a matter requires an objective analysis of the facts and circumstances.
Examples of significant matters include:
Matters that give rise to significant risks.
• Results of audit procedures indicating (a) that the financial statements could be materially misstated,
or (b) a need to revise the auditor’s previous assessment of the risks of material misstatement and
the auditor’s responses to those risks.
• Circumstances that cause the auditor significant difficulty in applying necessary audit procedures.
• Findings that could result in a modification to the audit opinion or the inclusion of an Emphasis of
Matter Paragraph in the auditor’s report.
An important factor in determining the form, content and extent of audit documentation of significant
matters is the extent of professional judgment exercised in performing the work and evaluating the
results.
Documentation of the professional judgments made, where significant, serves to explain the auditor’s
conclusions and to reinforce the quality of the judgment. Such matters are of particular interest to
those responsible for reviewing audit documentation, including those carrying out subsequent audits,
when reviewing matters of continuing significance (for example, when performing a retrospective
review of accounting estimates).
Some examples of circumstances in which it is appropriate to prepare audit documentation relating to
the use of professional judgment include, where the matters and judgments are significant:
• The rationale for the auditor’s conclusion when a requirement provides that the auditor ‘shall
consider’ certain information or factors, and that consideration is significant in the context of the
particular engagement.
• The basis for the auditor’s conclusion on the reasonableness of areas of subjective judgments (for
example, the reasonableness of significant accounting estimates).
• The basis for the auditor’s conclusions about the authenticity of a document when further
investigation (such as making appropriate use of an expert or of confirmation procedures) is
undertaken in response to conditions identified during the audit that caused the auditor to believe
that the document may not be authentic.

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 AUDIT DOCUMENTATION

Question 15
The nature and timing of the audit procedures to be used may be affected by the fact that some
of the accounting data and other information may be available only in electronic form or only
at certain points or periods in time. Explain with the help of examples. (RTP Nov’20)
Answer 15
The nature and timing of the audit procedures to be used may be affected by the fact that some of
the accounting data and other information may be available only in electronic form or only at certain
points or periods in time. For example, source documents, such as purchase orders and invoices, may
exist only in electronic form when an entity uses electronic commerce, or may be discarded after
scanning when an entity uses image processing systems to facilitate storage and reference.
Certain electronic information may not be retrievable after a specified period of time, for example, if
files are changed and if backup files do not exist. Accordingly, the auditor may find it necessary as a
result of an entity’s data retention policies to request retention of some information for the auditor’s
review or to perform audit procedures at a time when the information is available.

Question 16
While documenting the nature, timing and extent of audit procedures performed in case of
audit of PQR Ltd, explain the important matters its auditor should record. (RTP May ’21)
Answer 16
In documenting the nature, timing and extent of audit procedures performed, the auditor of PQR Ltd
shall record:
(i) The identifying characteristics of the specific items or matters tested.
(ii) Who performed the audit work and the date such work was completed; and
(iii) Who reviewed the audit work performed and the date and extent of such review?

Question 17
State with reason (in short) whether the following statements are true or false:
The auditor must include in audit documentation superseded drafts of working papers and
financial statements, notes that reflect incomplete or preliminary thinking etc. (RTP Nov ’21)
Answer 17
Incorrect: The auditor need not include in audit documentation superseded drafts of working papers
and financial statements, notes that reflect incomplete or preliminary thinking, previous copies of
documents corrected for typographical or other errors, and duplicates of documents.

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 AUDIT DOCUMENTATION

Question 18
State with reason (in short) whether the following statements are true or false:
As per SA 230 on “Audit Documentations”, the working papers are not the property of the
auditor. (RTP May ’18, Old & New SM)
Answer 18
Incorrect: As per SA 230 on “Audit Documentations” the working papers are the property of the
auditor and the auditor has right to retain them. He may at his discretion can make available working
papers to his client. The auditor should retain them long enough to meet the needs of his practice and
legal or professional requirement.

Question 19
State with reason (in short) whether the following statements are true or false:
Audit documentation is a substitute for the entity’s accounting records. (RTP May ’19 & Nov
18)
Answer 19
Incorrect: The auditor may include copies of the entity’s records (for example, significant and specific
contracts and agreements) as part of audit documentation. Audit documentation is not a substitute for
the entity’s accounting records.

Question 20
(Includes concepts of Chapter 1.2- SQC 1)
State with reason (in short) whether the following statements are true or false:
An appropriate time limit within which to complete the assembly of the final audit file is
ordinarily not more than 30 days after the date of the auditor’s report. (RTP May ’19 & Nov 18)
Answer 20
Incorrect: SQC 1 “Quality Control for Firms that perform Audits and Review of Historical Financial
Information, and other Assurance and related services”, requires firms to establish policies and
procedures for the timely completion of the assembly of audit files. An appropriate time limit within
which to complete the assembly of the final audit file is ordinarily not more than 60 days after the date
of the auditor’s report.

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Question 21
CA R comes to know some very critical information with regards to the business cycle of an entity
for which he has issued the audit report, which become known to him as an auditor after the date
of the auditor’s report but which existed at that date and which, if known at that date, might have
caused the financial statements to be amended or the auditor to modify the opinion in the auditor’s
report. He wants to perform additional audit procedures to satisfy himself. As an auditor what he
shall document, on the matters arising after the date of audit report? (RTP Nov’22)
Answer 21
As per SA 230, “Audit Documentation”, if, in exceptional circumstances, the auditor performs new or
additional audit procedures or draws new conclusions after the date of the auditor’s report, the auditor
shall document:
(i) The circumstances encountered;
(ii) The new or additional audit procedures performed, audit evidence obtained, and conclusions
reached, and their effect on the auditor’s report; and
(iii) When and by whom the resulting changes to audit documentation were made and reviewed.

Question 22
The auditor shall prepare audit documentation that is sufficient to enable an experienced auditor
to understand significant matters arising during the audit. Explain the above statement and also
give examples of significant matters. (RTP Nov’22)
Answer 22
The auditor shall prepare audit documentation that is sufficient to enable an experienced auditor,
having no previous connection with the audit, to understand significant matters arising during the
audit, the conclusions reached thereon, and significant professional judgments made in reaching those
conclusions.
Judging the significance of a matter requires an objective analysis of the facts and circumstances.
Examples of significant matters include:
• Matters that give rise to significant risks.
• Results of audit procedures indicating (a) that the financial statements could be materially misstated,
or (b) a need to revise the auditor’s previous assessment of the risks of material misstatement and
the auditor’s responses to those risks.
• Circumstances that cause the auditor significant difficulty in applying necessary audit procedures.
• Findings that could result in a modification to the audit opinion or the inclusion of an Emphasis of
Matter paragraph in the auditor’s report.

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 AUDIT DOCUMENTATION

Question 23
Audit Documentation refers to the record of three items. Explain stating clearly the objective
and nature of audit documentation. (RTP Nov ’23)
Answer 23
Audit Documentation refers to the record of audit procedures performed, relevant audit evidence
obtained, and conclusions the auditor reached.
The objective of the auditor is to prepare documentation that provides:
(i) A sufficient and appropriate record of the basis for the auditor’s report; and
(ii) Evidence that the audit was planned and performed in accordance with SAs and applicable legal
and regulatory requirements.
Nature of Audit Documentation Audit documentation provides:
(a) evidence of the auditor’s basis for a conclusion about the achievement of the overall objectives of
the auditor; and
(b) evidence that the audit was planned and performed in accordance with SAs and applicable legal
and regulatory requirements.

Question 24
The auditor shall assemble the audit documentation in an audit file and complete the
administrative process of assembling the final audit file on a timely basis. Explain in detail.
(RTP Nov ’23, May’23, Nov ’18 & May ’22)
Answer 24
The auditor shall assemble the audit documentation in an audit file and complete the administrative
process of assembling the final audit file on a timely basis after the date of the auditor’s report.
• SQC 1 “Quality Control for Firms that perform Audits and Review of Historical Financial
Information, and other Assurance and related services”, requires firms to establish policies and
procedures for the timely completion of the assembly of audit files.
• An appropriate time limit within which to complete the assembly of the final audit file is ordinarily
not more than 60 days after the date of the auditor’s report. The completion of the assembly of
the final audit file after the date of the auditor’s report is an administrative process that does not
involve the performance of new audit procedures or the drawing of new conclusions.
• Changes may, however, be made to the audit documentation during the final assembly process, if
they are administrative in nature.
Examples of such changes include:
• Deleting or discarding superseded documentation.

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 AUDIT DOCUMENTATION

• Sorting, collating and cross-referencing working papers.

• Signing off on completion checklists relating to the file assembly process.
• Documenting audit evidence that the auditor has obtained, discussed and agreed with the relevant
members of the engagement team before the date of the auditor’s report.
• After the assembly of the final audit file has been completed, the auditor shall not delete or discard
audit documentation of any nature before the end of its retention period.
• SQC 1 requires firms to establish policies and procedures for the retention of engagement
documentation. The retention period for audit engagements ordinarily is no shorter than seven
years from the date of the auditor’s report, or, if later, the date of the group auditor’s report.

Question 25
Examine with reasons (in short) whether the following statements are correct or incorrect:
Mr. A is a statutory auditor of ABC Ltd. The branch of ABC Ltd. is audited by Mr. B, another
Chartered Accountant. Mr. A requests for the photocopies of the audit documentation of Mr. B
pertaining to the branch audit. (PYP 2 Marks, May ’18, Old & New SM)
Answer 25
Incorrect: SA 230 issued by ICAI on Audit Documentation, and “Standard on Quality Control (SQC)
1, provides that, unless otherwise specified by law or regulation, audit documentation is the property
of the auditor. He may at his discretion, make portions of, or extracts from, audit documentation
available to clients, provided such disclosure does not undermine the validity of the work performed,
or, in the case of assurance engagements, the independence of the auditor or of his personnel.

Question 26
State with reasons whether the following statements are correct or incorrect:
The auditor shall assemble the audit documentation in the audit file and complete the
administrative process of assembling the final audit file before the date of the auditor’s report.
(PYP 2 Marks Nov 22)
Answer 26
Incorrect: The auditor shall assemble the audit documentation in an audit file and complete the
administrative process of assembling the final audit file on a timely basis after the date of the auditor’s
report. The completion of the assembly of the final audit file after the date of the auditor’s report is an
administrative process that does not involve the performance of new audit procedures or the drawing
of new conclusions.
Alternative reason: An appropriate time limit within which to complete the assembly of the final
audit file is ordinarily not more than 60 days after the date of the auditor’s report.
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MULTIPLE CHOICE QUESTIONS (MCQS)

1. Audit documentation provides:
(a) evidence of the auditor’s basis for a conclusion about the achievement of the overall objectives
of the auditor; or evidence that the audit was planned and performed in accordance with SAs and
applicable legal and regulatory requirements.
(b) evidence of the auditor’s basis for a conclusion about the achievement of the overall objectives of
the auditor; and evidence that the audit was planned and performed in accordance with SAs and
applicable legal and regulatory requirements.
(c) evidence of the auditor’s basis for a conclusion about the achievement of the overall objectives of
the auditor
(d) evidence that the audit was planned and performed in accordance with SAs and applicable legal
and regulatory requirements. (MTP 1 Mark March ’19, MTP 2 Marks Apr’21, Nov’21)
Ans: (b)

2. Which of the following is not an example of audit documentation:?

(a) Audit Programmes
(b) Summaries of significant matters
(c) Audit file
(d) Checklists. (MTP 1 Mark March ’19)
Ans: (c)

3. Which of the following is correct:

(a) The auditor shall assemble the audit documentation in an audit file and complete the administrative
process of assembling the final audit file on a timely basis after the date of the auditor’s report.
(b) The auditor shall assemble the audit documentation in an audit file and shall not complete the
administrative process of assembling the final audit file.
(c) The auditor shall assemble the audit documentation in an audit file and complete the administrative
process of assembling the final audit file on a timely basis before the date of the auditor’s report.
(d) The auditor shall not assemble the audit documentation in an audit file. (MTP-Oct’19-MTPApril’
19, 1 Mark)
Ans: (a)

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4. Judging the significance of a matter requires ______ of the facts and circumstances.
(a) objective analysis
(b) subjective analysis
(c) Both subjective and objective analysis
(d) qualitative analysis (MTP 1 Mark April 22, RTP Nov’19)
Ans :(a)

5. CA Amar is the statutory auditor of XYZ Ltd. for the FY 2020-21. During the process of
assembling the audit file, CA Amar briefed his team as to what all changes can be made to the
audit documentation at that stage.
Which of the following changes cannot be made to the audit documentation during the final
assembly process?
(a) Sorting, collating & cross referencing of working papers.
(b) Signing off completion checklists relating to the file assembly process.
(c) Deleting or discarding superseded documents.
(d) Recalculation of Depreciation. (MTP 1 Mark March ’23)
Ans: (d)

6. The auditor may consider it helpful to prepare and retain as part of the audit documentation
a summary (sometimes known as a completion memorandum) that describes-
(a) evidence identified during the audit
(b) the significant matters identified during the audit and how they were addressed
(c) the significant evidence identified during the audit
(d) the significant matters identified during the audit (MTP 1 Marks April ’23)
Ans: (b)

7. Which of the following is not a likely purpose of audit documentation?

(a) It helps to show that audit was conducted in accordance with requirements of SQC 1.
(b) It serves as a record of maEers of conFnuing significance to future audits.
(c) It assists engagement team to plan and perform the audit.
(d) It can directly help auditor in expanding client base. (MTP 1 Mark Sep ’23)
Ans: (d)
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8. A company has started its manufacturing operations from a newly constructed building. CA Z is
statutory auditor of company. Which of following is not likely to be an example of audit documentation?
(a) E-mail correspondence with CFO of company concerning significant maEers
(b) Audit programme
(c) Response to external confirmaFon requests
(d) Structural engineer’s report on strength of building (MTP 1 Mark Oct ’23)
Ans: (d)

9. ______________refers to the record of audit procedures performed, relevant audit evidence

obtained, and conclusions the auditor reached.
(a) Audit Techniques
(b) Audit evidence
(c) Audit Documentation
(d) Audit Procedures record (MTP 1 Mark March ’23)
Ans: (c)

10. An important factor in determining the form, content and extent of audit documentation of
significant matters is the extent of exercised in performing the work and evaluating the results.
(a) professional skepticism
(b) professional integrity
(c) professional judgment
(d) Professional sincerity (RTP Nov ‘19)
Ans: (c)

11. CA. Bobby is a recently qualified Chartered Accountant. He is appointed as an auditor of

Droopy Ltd. for the current Financial Year 2017-18. He is quite conservative in nature which
is also replicated in his professional work. CA. Bobby is of the view that he shall record all
the matters related to audit, audit procedures to be performed, audit evidence obtained and
conclusions reached. Thus, he maintained a file and recorded each and every of his findings
during the audit. His audit file, besides other thing, includes audit programmers, notes reflecting
preliminary thinking, letters of confirmation, e-mails concerning significant matters, etc.
State which of the following need not be included in the audit documentation?

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 AUDIT DOCUMENTATION

(a) Audit programmers.

(b) Notes reflecting preliminary thinking.
(c) Letters of confirmation.
(d) E-mails concerning significant matters. (RTP May ‘19)
Ans: (b)

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 AUDIT DOCUMENTATION

CASE STUDY
CA Rajan Pillai is heading the engagement team conducting audit of a company. While audit is
in progress, consider following issues regarding audit documentation:-
(A) Audit programme was prepared assigning responsibilities for different types of works to be
performed to team members. The engagement team consists of 4 members Mohit (CA final
student), Rohit (CA final student), Shobhit (Paid CA) and CA Rajan Pillai (partner of audit
firm).
(B) The team has determined materiality for financial statements as a whole.
(C) The team has assessed risks of material misstatements to be low.
(D) CA Shobhit is responsible for attending inventory count process and putting down its
documentation part.
(E) During the course of audit, many related party transactions have come to notice.

MULTIPLE CHOICE QUESTIONS (MCQS)

Based on above, answer the following questions: -
1. Work relating to verification of revenue was assigned to Mohit in audit programme. However,
it is being performed by Rohit actually. Verification of trade receivables was planned to be
carried out by Rohit in audit programme. However, it being performed by CA Rajan Pillai due
to last minute practical issues.
Which of the following statements is most appropriate in this regard relating to audit
documentation?
(a) Audit programme contains names of persons and work to be performed. It is immaterial whether
work assigned to one person is performed by another person.
(b) Audit programme was already prepared. Only persons assigned specific responsibilities can
perform those duties.
(c) It is necessary that audit programme be suitably updated or notes are given in working papers to
this effect so that planned duties are in accordance with actual work performance.
(d) Changes in audit programme or notes clarifying the matter are required only when a person not
forming part of engagement team is deputed to perform a duty. Otherwise, this issue of intershuffling
of team members is frivolous.
Ans: (c)

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 AUDIT DOCUMENTATION

2. As regards materiality, which of the following statements is most appropriate in context of

audit documentation?
(a) Materiality has already been determined. There is no need to put it into working papers.
(b) Materiality depends upon professional judgment of auditor. Whatever amount has been determined
can be documented in working papers.
(c) Materiality arrived on basis of professional judgment along with factors considered in the
determination has to be documented.
(d) Materiality has been arrived upon professional judgment. It also depends upon professional
judgment of auditor whether he wants to document it or not.
Ans: (c)

3. As regards team’s assessment that risk of material misstatements is low, which of the following
statements is odd one relating to documentation of risk?
(a) Discussion amongst engagement team members and detail of significant decisions reached has to
be documented.
(b) Details of risk assessment procedures have to be documented.
(c) Details about how understanding of each component of internal control was obtained has to be
documented.
(d) Precise calculation of risk of material misstatements has to be documented.
Ans: (d)

4. CA Shobhit is responsible for attending physical inventory count of the company. Which of
the following is not true in this regard relating to audit documentation?
(a) Dates on which physical inventory count process was attended by him should be documented. It
may also include photographs of that date showing his attendance of inventory counting process
at a particular location.
(b) Detail of test counting undertaken should form part of audit documentation.
(c) Detail of obsolete goods found should form part of audit documentation.
(d) Reports showing that stocks conform to quality control standards in accordance with law are
essential part of audit documentation.
Ans: (d)

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 AUDIT DOCUMENTATION

5. As regards related party transactions, which of the following should not be part of audit
documentation?
(a) Management representation letter in this regard
(b) Related party transaction policy of the company
(c) Documentation to show that such transactions are at arm’s length basis
(d) Documentation to show that such transactions are at close length basis
Ans: (d)

TEST YOUR KNOWLEDGE

6. Which of the following statement is appropriately suited to preparation of audit documentation?
(a) Audit documentation has to be prepared simultaneously as audit progresses.
(b) Audit documentation has to be prepared 60 days after date of audit report.
(c) Audit documentation has to be prepared when information is required by regulator.
(d) Audit documentation has to be prepared 60 days after completion of audit work.
Ans: (a)

7. Audit documentation is owned by: -

(a) Client
(b) Auditor
(c) Team member responsible for documentation
(d) Regulator
Ans: (b)

8. Which of the following is least likely to be included in audit documentation of a company

engaged in manufacturing and export of goods?
(a) Previous years audited financial statements
(b) Projected cash flow statement for next twelve months provided by management in support of
going concern assumption
(c) Statements showing dispatch of overseas consignments in accordance with delivery schedules of
overseas buyers
(d) Statement showing verification of ageing of trade receivables as on date of balance sheet
Ans: (c)
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 AUDIT DOCUMENTATION

9. Which of the following is false in relation to audit documentation when an external auditor
relies upon work of internal auditor?
(a) Evaluation of objectivity and competence of internal auditor has to be documented.
(b) Nature of work used and reason for relying upon work used forms part of documentation.
(c) Documentation on whether quality control is exercised in internal audit work forms part of audit
documentation.
(d) Documentation on what specific recommendations were given by internal auditor for risk
assessment to external auditor forms part of audit documentation.
Ans: (d)

Correct/Incorrect
State with reasons (in short) whether the following statements are correct or incorrect:
Question 1
As per SA 230 on “Audit Documentation”, the working papers are not the property of the
auditor.
Answer 1
Incorrect: As per SA 230 on “Audit Documentation” the working papers are the property of the
auditor and the auditor has right to retain them. He may at his discretion can make available working
papers to his client. The auditor should retain them long enough to meet the needs of his practice and
legal or professional requirement.

Question 2
Mr. A is a statutory auditor of ABC Ltd. The branch of ABC Ltd. is audited by Mr. B, another
Chartered Accountant. Mr. A requests for the photocopies of the audit documentation of Mr. B
pertaining to the branch audit.
Answer 2
Incorrect: SA 230 issued by ICAI on Audit Documentation, and “Standard on Quality Control (SQC)
1, provides that, unless otherwise specified by law or regulation, audit documentation is the property
of the auditor. He may at his discretion, make portions of, or extracts from, audit documentation
available to clients, provided such disclosure does not undermine the validity of the work performed,
or, in the case of assurance engagements, the independence of the auditor or of his personnel.

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THEORETICAL QUESTIONS ANSWER

Question 1
The form, content and extent of audit documentation depends upon number of factors. List out
any four such factors.
Answer 1
The form, content and extent of audit documentation depend on factors such as:
1. The size and complexity of the entity.
2. The nature of the audit procedures to be performed.
3. The identified risks of material misstatement.
4. The significance of the audit evidence obtained.
5. The nature and extent of exceptions identified.
6. The need to document a conclusion or the basis for a conclusion not readily determinable from the
documentation of the work performed or audit evidence obtained.
7. The audit methodology and tools used.

Question 2
Discuss any two purposes of audit documentation.
Answer 2
The following are the purpose of Audit documentation:
1. Assisting the engagement team to plan and perform the audit.
2. Assisting members of the engagement team to direct and supervise the audit work, and to discharge
their review responsibilities.
3. Enabling the engagement team to be accountable for its work.
4. Retaining a record of matters of continuing significance to future audits.
5. Enabling the conduct of quality control reviews and inspections in accordance with SQC 1.
6. Enabling the conduct of external inspections in accordance with applicable legal, regulatory or
other requirements.

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Question 3
Define audit documentation. Also give some examples.
Answer 3
Audit Documentation refers to the record of audit procedures performed, relevant audit evidence
obtained, and conclusions the auditor reached. (terms such as “working papers” or “work papers” are
also sometimes used.)
Audit Documentation include:
• Audit programmes.
• Analyses.
• Issues memoranda.
• Summaries of significant matters.
• Letters of confirmation and representation.
• Checklists.
• Correspondence (including e-mail) concerning significant matters.

Question 4
“Audit documentation summary may facilitate effective and eficient reviews and inspections of
the audit documentation, particularly for large and complex audits”. Explain.
Answer 4
The auditor may consider it helpful to prepare and retain as part of the audit documentation a summary
(sometimes known as a completion memorandum) that describes-
• the significant matters identified during the audit and
• how they were addressed.
Such a summary may facilitate effective and efficient review and inspection of the audit documentation,
particularly for large and complex audits. Further, the preparation of such a summary may assist
auditor’s consideration of the significant matters. It may also help the auditor to consider whether
there is any individual relevant SA objective that the auditor cannot achieve that would prevent the
auditor from achieving the overall objectives of the auditor.

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 AUDIT DOCUMENTATION

Question 5
Illustration
A new team member of the auditors of Extremely Vibrant Limited was of the view that Audit
Documentation does not help in planning the audit of any company. Explain whether Audit
Documentation has any relation with regard to planning the audit of a company.
Answer 5
Audit Documentation helps in planning the audit of a company in a proper manner and also helps in
conducting the audit of that company in a more effective way.

Question 6
Illustration
While auditing the books of accounts of Very Careful Limited for the financial year 2020-21, a
team member of the auditors of Very Careful Limited was of the view that with regard to audit
of the company, no relation exists between Audit File and Audit Documentation. Explain the
relationship between Audit File and Audit Documentation.
Answer 6
Audit file may be defined as one or more folders or other storage media, in physical or electronic form,
containing the records that comprise the audit documentation for a specific engagement. The auditor
shall assemble the audit documentation in an audit file and complete the administrative process of
assembling the final audit file on a timely basis after the date of the auditor’s report.

Question 7
Illustration
A director of Very Different Limited was of the view that Audit Documentation of a company is
the property of that company. Comment on the contention of the director regarding the audit
documentation of the company.
Answer 7
Audit Documentation of a company is not the property of the company rather Audit Documentation
is the property of Auditor of that company.

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 AUDIT DOCUMENTATION

Test Your Understanding

Question 1
During the course of audit of a company, an issue arose relating to treatment of interest costs
of company on its restructured loans taken from a bank. This important matter was discussed
with CFO of the company and was properly resolved. Is it necessary for the auditor to include
in its working papers?
Answer 1
The auditor shall document discussions of significant matters with management, those charged with
governance, and others, including the nature of the significant matters discussed and when and with
whom the discussions took place.
In the instant case, an important matter regarding treatment of interest costs of company on its
restructured loans taken from a bank directly impacting profits of the company was discussed.
Although issue was resolved, it is necessary to document the same by including detail of the person
with whom discussions took place along with date.

Question 2
CA Sonali Morarka has completed audit of a listed company. The audit report dated 15th July,
2022 has been issued. However, audit working papers including record of discussions with
management, details of audit procedures performed to obtain audit evidence and conclusions
reached by her have not been properly assembled. More than six months have elapsed after
issue of audit report. Subsequently, she has received a letter from regulator in connection with
audit of the company requesting her to share copy of audit file.
The letter has woken up her from deep slumber. She hurriedly assembled audit file and inserted some
more papers which were necessary. However, she put current date on these inserted papers and the
copy of audit file was sent to regulator. Discuss, the issues involved, in context of “audit documentation”.
Answer 2
An appropriate time limit within which to complete the assembly of the final audit file is ordinarily
not more than 60 days after the date of the auditor’s report.
Further, preparing sufficient and appropriate audit documentation on a timely basis helps to enhance the
quality of the audit and facilitates the effective review and evaluation of the audit evidence obtained and
conclusions reached before the auditor’s report is finalized. Documentation prepared after the audit work has
been performed is likely to be less accurate than documentation prepared at the time such work is performed.
In the given case, even after passage of more than six months, she has not assembled audit file.
Besides, she has put in some papers with current date which is not permissible at all. It shows that
part of audit documentation has been prepared afterwards putting a question mark on quality of audit.

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CA Harshad Jaju
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