CA Anuj is in practice for the past few years as proprietor of Anuj & Associates. He is very keen on documentation aspects while performing…

CA Anuj is in practice for the past few years as proprietor of Anuj & Associates. He is very keen on documentation aspects while performing assurance engagements. He handles audits of various corporate and non-corporate clients with team members. The proprietorship concern also handles review engagements as well as engagements to report on prospective financial information as per needs and requirements of its clientele. Presently, it is handling audit of “Buddy Enterprises”, a partnership firm, for year 2024-25 in middle of busy audit season. This business enterprise is also availing cash credit limit of 10lacs from CDB Bank. The firm's partnership deed contains a clause stipulating audit of its financial statements by a firm of Chartered Accountants every year. However, there is no legal requirement to get financial statements of partnership firm audited. Its Profit before tax is 15lacs. The audit team has planned everything right from risk assessment procedures to tests of controls as well as substantive procedures. Audit plan and audit programme have been duly documented. However, during the course of audit, some information has come to notice of audit team which requires change in audit plan and could lead to revision of audit strategy. J, junior team member is pondering over documentation requirements in this peculiar situation. Another team member, K has understood meaning of "sufficient appropriate" evidence while conducting audits. However, he is wondering over obtaining sufficient appropriate evidence in case of assurance engagements which may not be in nature of audit. At the initial stage, audit team has determined materiality for financial statements as whole @ 5% of Profit before tax (i.e. 5% of 15lacs = 75000). K is also concerned about documenting materiality as part of audit documentation. K vividly remembers that an assurance engagement involves three party relationship. However, another team member Q confronts him with meaning of three-party relationship. In accordance with terms of sanction letter, it has been stipulated by CDB bank that partnership firm is required to submit quarterly stock statements to bankers. During quarter ended 31st December 2024, value of stocks declared by firm to bankers is 10lacs and margin stipulated in sanction letter is 20%. Based upon above, answer the following questions: -