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CA Final · Advanced Auditing, Assurance and Professional Ethics · General Auditing Principles and Auditors Responsibilities

A junior auditor at Iyer & Co says that since the firm's audit of Lotus Retail Ltd followed a risk-based approach, assessing risks of material misstatement at the assertion level is unnecessary. Which response is consistent with SA 200?

Risks of material misstatement at the assertion level must be assessed, because that assessment determines the nature, timing and extent of further audit procedures needed to obtain sufficient appropriate audit evidence and so keep audit risk acceptably low. It is not optional or related to fees.

  1. ACorrect, because risk assessment is only needed at the financial statement level
  2. BIncorrect; risks of material misstatement at the assertion level are assessed to determine the nature, timing and extent of further audit procedures needed to obtain sufficient appropriate audit evidenceCorrect
  3. CCorrect, because the audit risk model removes the need for any assessment
  4. DIncorrect; assertion level risks are assessed only to decide the audit fee

Explanation

SA 200 explains that assertion-level risks of material misstatement are assessed to determine the nature, timing and extent of further audit procedures, enabling an opinion at an acceptably low level of audit risk. Option C is wrong because the model is only an aid some auditors find useful, not a replacement for assessment.

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