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CA Intermediate · Auditing and Ethics · Audit Documentation

Verma & Co audits Pinnacle Steels Ltd. Mid-audit, the auditor concludes that information about a related-party transaction obtained from the management is inconsistent with other evidence. The audit team lead resolves it after discussing with the partner and decides the management representation is unreliable. Which documentation step best meets SA 230?

The auditor should document how the inconsistency was addressed, including the conclusions reached and the professional judgments applied. SA 230 requires such documentation for significant matters, and the inconsistent information cannot be discarded or kept outside the audit file.

  1. ADocument nothing, because only final conclusions need recording
  2. BDocument how the inconsistency was addressed, including conclusions reached and professional judgments madeCorrect
  3. CRetain only the management's final corrected statement and discard the inconsistent information
  4. DRecord it only in the partner's personal notes, not in the audit file

Explanation

SA 230 requires that if the auditor identifies information inconsistent with the final conclusion on a significant matter, the auditor documents how the inconsistency was addressed. The documentation should include the professional judgments applied. Discarding the inconsistent information, keeping only the final conclusion, or keeping personal notes outside the file defeats the purpose of the record.

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