Skip to content

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

Anand & Associates are reviewing the financial statements of Orion Metals Ltd, which are general purpose statements and not intended for any specific user group. The engagement partner proposes to set materiality by considering the particular circumstances of a major lender who may read them. Which statement is correct under SRE 2400 (Revised)?

Unless the review is of statements meant for the particular needs of specific users, the possible effect of misstatements on specific users, whose information needs vary widely, is not ordinarily considered. Materiality remains the practitioner's professional judgment, assuming users with reasonable knowledge of business and accounting.

  1. AMateriality must be based solely on the lender's needs because lenders are the most important users
  2. BUnless the statements are intended to meet the particular needs of specific users, the possible effect of misstatements on specific users whose needs vary widely is not ordinarily consideredCorrect
  3. CMateriality is a matter of management's judgment, not the practitioner's
  4. DUsers are assumed to have no knowledge of accounting, so materiality should be set at the lowest level

Explanation

Materiality is a matter of professional judgment affected by the practitioner's perception of the needs of intended users, who are assumed to have reasonable business and accounting knowledge. Unless the statements serve specific users' particular needs, the effect on specific users with widely varying needs is not ordinarily considered. Hence the lender-based approach is wrong.

Did you get it right without looking?

One question tells you little. A timed set on Review of Financial Information shows your real accuracy, how long you take and where you lose marks.

Practise Review of Financial InformationFree diagnostic mock

More Review of Financial Information questions