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

M/s Rao & Associates audits Kaveri Spices Ltd, a small entity with an uncomplicated business and simple financial reporting processes. The engagement partner asks how the understanding of the entity and the risk assessment may be documented. Which approach is consistent with SA 315?

For a small entity with simple processes, the auditor may document the understanding and risk assessment within the overall audit strategy and audit plan documentation. SA 315 leaves the manner of documentation to professional judgment, so a separate file is allowed but not compulsory.

  1. AThe documentation may be incorporated in the documentation of the overall audit strategy and audit plan, since the form is a matter of professional judgmentCorrect
  2. BThe risk assessment must always be documented in a separate standalone file, never within the audit plan
  3. CRisk assessment need not be documented for any small entity
  4. DThe entire understanding of the entity must be documented in full detail regardless of its complexity

Explanation

SA 315 states that the manner of documentation is for the auditor to determine using professional judgment, and that in audits of small entities it may be incorporated in the documentation of the overall strategy and audit plan under SA 300. A separate file is permitted but not mandatory. Skipping documentation altogether is wrong because key elements must still be recorded.

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