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

Sundaram & Co., a small trading firm with uncomplicated business processes, is audited by Rao Associates. The audit senior asks whether the entire understanding of the entity must be written down in the working papers. According to SA 315 (as reproduced), what is the correct position?

For an entity with uncomplicated business processes, the auditor's documentation may be simple and brief. The entire understanding need not be recorded, but the key elements on which the assessment of risks of material misstatement was based must be documented.

  1. AEvery element of the understanding must be documented in full, regardless of the entity's size
  2. BDocumentation may be simple and brief, and need not cover the entire understanding, but must include the key elements on which the risk assessment was basedCorrect
  3. CNo documentation of the understanding is needed for small entities
  4. DOnly the final audit opinion needs to be documented

Explanation

SA 315 states that for entities with uncomplicated businesses and processes, documentation may be simple in form and relatively brief. It is not necessary to document the entirety of the understanding, but the key elements on which the risk assessment was based must be documented. Requiring full documentation or none misstates this.

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