Skip to content

CS Professional · Compliance Management, Audit and Due Diligence · Forming an Opinion and Reporting

Auditor CS Meera reviews Bharat Agro Ltd. Management has consistently chosen optimistic assumptions for provisions, each individually within an acceptable range, and all the estimates move profit upward. What does SA 700 (Revised) require her to do when evaluating whether the financial statements are prepared in accordance with the framework?

She must consider the qualitative aspects of the entity's accounting practices, including indicators of possible bias in management's judgments. A consistent pattern of estimates all pushing profit upward is such an indicator, even if each estimate individually looks acceptable.

  1. AIgnore the pattern, since each estimate is individually acceptable
  2. BConsider the qualitative aspects of the entity's accounting practices, including indicators of possible bias in management's judgmentsCorrect
  3. CConsider only quantitative thresholds of materiality and not management judgments
  4. DLeave the question of bias to the audit committee alone

Explanation

The standard requires the evaluation to include the qualitative aspects of accounting practices, including indicators of possible bias in management's judgments. A consistent one-directional pattern of estimates is such an indicator, so ignoring it because each estimate is acceptable is wrong.

Did you get it right without looking?

One question tells you little. A timed set on Forming an Opinion and Reporting shows your real accuracy, how long you take and where you lose marks.

Practise Forming an Opinion and ReportingFree diagnostic mock

More Forming an Opinion and Reporting questions