How should disagreements between the auditor and the audited entity be documented?

Documenting disagreements between the auditor and the audited entity is critical for maintaining transparency and providing a clear record of differing viewpoints. The correct choice emphasizes the necessity of presenting these disagreements in a clear and concise manner. This involves ensuring that the documentation is free from ambiguity and bias, which helps in accurately conveying the nature of the disagreement and allows for a thorough understanding by any future reviewers of the audit process.

Clear documentation can later serve as a vital reference in case of disputes or appeals and contributes to a more robust audit trail. Ensuring that the record is free from bias is equally important as it upholds the integrity of the audit process, reflecting an honest account of the auditor's assessments and the entity's perspectives without favoring either side.

The incorrect options highlight less effective methods of documentation. Informal discussions alone lack the necessary formality required for audit processes, while relying solely on verbal communications does not provide any lasting evidence. Lastly, only documenting disagreements if both parties agree could lead to an incomplete or skewed representation of the audit findings, which undermines the objective nature of the auditing process.