Q.1 What is the primary purpose of audit documentation?
To record client’s business strategies
To provide evidence for the auditor’s opinion
To prepare financial statements
To ensure tax compliance
Explanation - Audit documentation serves as evidence supporting the auditor’s conclusions and opinion on financial statements.
Correct answer is: To provide evidence for the auditor’s opinion
Q.2 Audit working papers are the property of?
The client
The auditor
The government
The shareholders
Explanation - Working papers are the property of the auditor, though parts may be shared with the client if needed.
Correct answer is: The auditor
Q.3 Which of the following is NOT an objective of audit documentation?
Assisting in planning and performing the audit
Providing evidence of work performed
Serving as a substitute for the client’s accounting records
Facilitating review and supervision
Explanation - Audit documentation cannot replace the client’s accounting records; it only records auditor’s procedures and evidence.
Correct answer is: Serving as a substitute for the client’s accounting records
Q.4 How long should audit documentation generally be retained?
At least 2 years
At least 5 years
At least 7 years
Indefinitely
Explanation - Standards generally require audit documentation to be retained for a minimum of 7 years.
Correct answer is: At least 7 years
Q.5 Which standard specifically provides guidance on audit documentation?
SA 200
SA 230
SA 500
SA 700
Explanation - SA 230 (Audit Documentation) lays down requirements for preparing audit documentation.
Correct answer is: SA 230
Q.6 What are current audit files mainly concerned with?
Information for future audits
Permanent information like incorporation documents
Audit working papers of current year
Tax filings
Explanation - Current audit files include audit evidence and working papers related to the current year’s audit.
Correct answer is: Audit working papers of current year
Q.7 Which of the following is an example of permanent audit file content?
Bank reconciliation of current year
Copy of incorporation certificate
Depreciation working papers
Inventory count sheets
Explanation - Permanent files hold documents that are relevant for multiple years, like incorporation certificates and legal agreements.
Correct answer is: Copy of incorporation certificate
Q.8 Why is indexing of working papers important?
To save storage space
To maintain secrecy
To facilitate easy identification and cross-reference
To avoid taxation issues
Explanation - Indexing ensures papers can be easily located, referenced, and reviewed.
Correct answer is: To facilitate easy identification and cross-reference
Q.9 Who is responsible for preparing audit documentation?
The client’s management
The audit staff
The auditor
The shareholders
Explanation - The auditor is responsible for preparing and maintaining audit documentation.
Correct answer is: The auditor
Q.10 What does audit documentation primarily demonstrate?
Auditor’s compliance with auditing standards
Client’s compliance with accounting standards
Tax law compliance
Management’s strategic plans
Explanation - Documentation demonstrates that the audit was conducted in accordance with auditing standards.
Correct answer is: Auditor’s compliance with auditing standards
Q.11 Which of the following is usually NOT part of working papers?
Audit program
Bank reconciliation
Copy of incorporation certificate
Management letter
Explanation - Copies of incorporation certificates belong to permanent files, not current year’s working papers.
Correct answer is: Copy of incorporation certificate
Q.12 Which characteristic is most important in audit documentation?
Brevity
Clarity
Secrecy
Volume
Explanation - Audit documentation must be clear and understandable for effective review.
Correct answer is: Clarity
Q.13 Inadequate audit documentation may lead to?
Enhanced credibility
Inability to support audit opinion
Reduced client costs
Improved efficiency
Explanation - If documentation is insufficient, the auditor’s opinion may lack proper evidence.
Correct answer is: Inability to support audit opinion
Q.14 What type of audit evidence is included in working papers?
Only physical evidence
Only oral evidence
Only documentary evidence
All types of audit evidence
Explanation - Working papers include all relevant forms of audit evidence: physical, oral, and documentary.
Correct answer is: All types of audit evidence
Q.15 Tick marks in working papers are used for?
Decoration
Confidentiality
Indicating audit procedures performed
Legal compliance
Explanation - Tick marks are symbols used to denote audit procedures carried out or evidence obtained.
Correct answer is: Indicating audit procedures performed
Q.16 Who reviews audit working papers in an audit firm?
Only the client
Only shareholders
Supervisors and audit managers
Tax authorities
Explanation - Audit working papers are reviewed internally by supervisors and managers to ensure quality.
Correct answer is: Supervisors and audit managers
Q.17 What should audit documentation include regarding significant matters?
Only client explanations
Auditor’s judgments and conclusions
Tax advice
Shareholder recommendations
Explanation - Audit documentation must include auditor’s professional judgments about significant matters.
Correct answer is: Auditor’s judgments and conclusions
Q.18 Which of the following best describes a permanent file?
Yearly audit program
Client’s legal agreements
Cash flow statement for current year
Bank confirmation letter
Explanation - Permanent files hold documents useful across multiple years like legal agreements.
Correct answer is: Client’s legal agreements
Q.19 Cross-referencing in audit working papers helps in?
Minimizing storage space
Improving the client’s accounting
Tracking related information across documents
Avoiding government scrutiny
Explanation - Cross-referencing ensures consistency and easy navigation across audit documents.
Correct answer is: Tracking related information across documents
Q.20 Which of the following best describes audit working papers?
Permanent client records
Evidence collected during audit
Statutory filings
Confidential government papers
Explanation - Working papers are records of audit evidence obtained and procedures performed.
Correct answer is: Evidence collected during audit
Q.21 Which of the following is usually found in a current file?
Copy of memorandum of association
Tax assessments from 10 years ago
Audit program for current year
Legal case files
Explanation - The current file includes documents like audit programs specific to the current year.
Correct answer is: Audit program for current year
Q.22 Who has ultimate responsibility for audit documentation?
Audit assistants
Client’s CFO
Engagement partner
Regulators
Explanation - The engagement partner has overall responsibility for audit documentation.
Correct answer is: Engagement partner
Q.23 Why must audit documentation be prepared on a timely basis?
To reduce client’s workload
To enhance accuracy and completeness
To satisfy shareholders
To avoid taxation issues
Explanation - Timely preparation ensures documentation is accurate and complete, avoiding omissions.
Correct answer is: To enhance accuracy and completeness
Q.24 Audit documentation should be sufficient to enable?
A third party to understand the audit work performed
Management to prepare financial statements
Shareholders to compute profits
Tax officers to levy penalties
Explanation - Audit documentation should allow an experienced auditor to understand procedures performed and conclusions reached.
Correct answer is: A third party to understand the audit work performed
Q.25 What is the primary characteristic of good audit working papers?
Neatness and clarity
Length and volume
Secrecy
Decoration
Explanation - Clear, neat, and well-organized working papers enhance understanding and review.
Correct answer is: Neatness and clarity