Question

During the audit of Family Fitness Co., the auditor determines that he needs to view a copy of a contract for the lease of the building. Where should the auditor look for the document?

1) Current File
2) Lead Schedule
3) Permanent File
4) Management File

Answer 1

The auditor would find the lease contract for the building in the permanent file, which contains legal documents and records with lasting impact on the financial statements. Correct answer is option 3.

Step-by-step explanation:

During an audit, various documents are reviewed to assess the financial health and compliance of an organization. The auditor looking for the lease contract for the building leased by Family Fitness Co. would typically find this document in the permanent file.

Unlike the current file, which contains information relevant to the ongoing audit year such as the current year's working papers, or the lead schedule, which summarizes account balances and reconciliations, the permanent file houses important legal documents, contracts, and records that have a lasting impact on the financial statements across multiple years.

The management file is an unofficial term and may refer to the documents that the management maintains for their internal use but is not a recognized category in auditing. Hence, in the context of an audit, legal documents such as building leases which have a long-term significance are retained in the permanent file of the auditor's documentation.