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

CA Anita is determining materiality for a review of Bharat Pumps Ltd's financial statements prepared for general purposes, not for any specific users. Which approach aligns with SRE 2400 (Revised)?

Anita should assume users have reasonable business and accounting knowledge, study the statements diligently, and understand that statements are prepared and reviewed to levels of materiality. For general-purpose statements she does not ordinarily consider the effect of misstatements on specific users whose needs vary widely.

  1. AConsider the effect of misstatements on each individual shareholder's particular information needs
  2. BBase materiality on the lender's covenant needs alone, as lenders are the most important users
  3. CAssume users understand that statements are prepared, presented and reviewed to levels of materiality, and ordinarily not consider the effect on specific users whose needs vary widelyCorrect
  4. DAssume users have no knowledge of business and will not study the statements

Explanation

The standard says it is reasonable to assume users understand materiality levels and recognise estimation uncertainty, and that unless statements meet specific users' needs, the effect on specific users is not ordinarily considered. Option A contradicts this, and option D reverses the assumption of reasonable knowledge and diligence.

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