Skip to content

CS Professional · Compliance Management, Audit and Due Diligence · Audit Process and Documentation

Auditor Kiran Desai is planning substantive procedures on the financial statement closing process of two clients: Alpha Ltd, with a complex reporting process and many period-end adjustments, and Beta Traders, with a simple process and few adjustments. Per SA 330 (as reproduced), how should the nature and extent of examining journal entries and other adjustments be determined?

The nature and extent of examining journal entries and other adjustments depend on the nature and complexity of the entity's financial reporting process and the related risks of material misstatement, so the complex Alpha Ltd would normally need more extensive work than Beta Traders.

  1. AIt must be identical for both clients to ensure consistency
  2. BIt depends on the nature and complexity of the entity's financial reporting process and the related risks of material misstatementCorrect
  3. CIt depends only on the audit fee agreed with each client
  4. DIt depends only on the total number of journal entries in the year

Explanation

SA 330 states that the nature and extent of examining journal entries and other adjustments depend on the nature and complexity of the entity's financial reporting process and related risks of material misstatement. Alpha, being complex, would warrant more extensive work than Beta. Uniform work or fee-based work is not what the standard says.

Did you get it right without looking?

One question tells you little. A timed set on Audit Process and Documentation shows your real accuracy, how long you take and where you lose marks.

Practise Audit Process and DocumentationFree diagnostic mock

More Audit Process and Documentation questions