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CA Final · Advanced Auditing, Assurance and Professional Ethics · Review of Financial Information

A practitioner reviewing Bharat Agro Ltd's statements is deciding materiality. The review is not for statements meant for any specific users' particular needs. Which approach aligns with SRE 2400 (Revised)?

The practitioner ordinarily does not consider the effect of misstatements on specific users whose needs vary widely, and may assume users have reasonable business and accounting knowledge, understand that statements are reviewed to levels of materiality, and recognise the uncertainties inherent in estimates.

  1. ABase materiality on the specific needs of the largest lender, whose requirements differ widely from others
  2. BOrdinarily not consider the possible effect of misstatements on specific users whose information needs may vary widely, and assume users understand statements are reviewed to levels of materialityCorrect
  3. CAssume users have no knowledge of business and accounting and need simplified disclosures
  4. DAssume users expect financial statements to be free of all estimation uncertainty

Explanation

The text says that unless the review is for statements intended to meet particular needs of specific users, the effect of misstatements on specific users with widely varying needs is not ordinarily considered. It also lets the practitioner assume users understand statements are prepared and reviewed to levels of materiality and recognise uncertainties in estimates. The other options contradict these assumptions.

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