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CS Professional · Compliance Management, Audit and Due Diligence · Audit Process and Documentation

Auditor of Narmada Steel Ltd observes that the company has an established risk assessment process. Which sequence best reflects SA 315's requirement and the judgment involved?

The auditor must obtain an understanding of the established risk assessment process and its results. Whether it is appropriate to the entity's circumstances, including nature, size and complexity, is a matter of professional judgment; merely having a process does not make it appropriate.

  1. AObtain an understanding of the process and its results; whether it is appropriate to the entity's nature, size and complexity is a matter of judgmentCorrect
  2. BTest the process only if management asks; appropriateness is decided by management
  3. CAssume the process is appropriate since it exists, and skip understanding its results
  4. DUnderstand the process only for listed entities, because size is irrelevant to appropriateness

Explanation

Where an entity has established a risk assessment process, the auditor shall understand it and its results. Whether it is appropriate to the circumstances, including nature, size and complexity, is a matter of judgment for the auditor. Existence alone does not establish appropriateness, and the requirement is not limited to listed entities or management's request.

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