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CA Intermediate · Auditing and Ethics · Audit Documentation

During the audit of Bharat Steels Ltd, the auditor identified a significant matter concerning a related party loan, discussed it by phone with the CFO and later with those charged with governance, and concluded that no adjustment was needed. The staff note records only 'Discussed, OK'. A reviewer must decide what SA 230 requires. Which is the correct audit response?

The auditor should document the discussion of the significant related party matter, including its nature, when it occurred and with whom, in enough detail for an experienced auditor with no prior connection to understand it. Oral explanations later cannot replace written documentation.

  1. AThe note is adequate because the auditor's final conclusion was reached and the report was signed
  2. BDocumentation must be supplemented orally by the auditor at inspection to explain the matter, which suffices as evidence
  3. CDocumentation should record the discussions of significant matters with management and others, including nature, when and with whom, so an experienced auditor with no prior connection can understand themCorrect
  4. DDocumentation of discussions is needed only if the matter led to a modified opinion

Explanation

SA 230 requires the auditor to document discussions of significant matters with management, those charged with governance and others, including the nature of the matters, when and with whom held. The documentation should enable an experienced auditor with no previous connection to understand the work. Oral explanations alone do not replace documentation, though they may clarify it, and the requirement is not limited to modified opinions.

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