Skip to content

CA Intermediate · Auditing and Ethics · Nature, Objective and Scope of Audit

CA Arjun is appointed as statutory auditor of Meera Retail Ltd. During the audit, he finds that a few vouchers are missing and the management cannot explain why. He decides to simply ignore this as the amounts are individually small, without considering their combined effect. Which concept has he misapplied in planning and performing the audit?

Arjun has misapplied the concept of materiality. Misstatements and irregularities must be evaluated both individually and in aggregate, and the nature of the item matters as well as its size. Small missing vouchers may together be material or signal control weakness or fraud.

  1. AGoing concern, since missing vouchers show the company will not continue
  2. BMateriality, since misstatements must be assessed individually and in aggregate, and also by their natureCorrect
  3. CIndependence, since vouchers belong to management
  4. DSubsequent events, since the vouchers relate to later dates

Explanation

SA 320 and SA 450 require the auditor to evaluate misstatements both individually and in aggregate, and consider the nature as well as size. Many small items may together be material, and missing vouchers may also indicate control weakness or fraud. Option A is wrong as missing vouchers alone do not show going concern doubt.

Did you get it right without looking?

One question tells you little. A timed set on Nature, Objective and Scope of Audit shows your real accuracy, how long you take and where you lose marks.

Practise Nature, Objective and Scope of AuditFree diagnostic mock

More Nature, Objective and Scope of Audit questions