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CA Intermediate · Auditing and Ethics · Audit Strategy, Audit Planning and Audit Programme

CA Meena is auditing Ganga Pharma Ltd. At the planning stage she set overall materiality at ₹8 lakh based on expected profit before tax. During fieldwork, the actual profit before tax turns out to be much lower than expected, so that the materiality she would have set is ₹5 lakh. She had already designed procedures based on ₹8 lakh. What is the correct response under SA 320?

She should revise materiality, and with it performance materiality, and then reassess whether the nature, timing and extent of further audit procedures are still appropriate. SA 320 requires revision when new information would have led to a different amount at the start. Management approval is not needed.

  1. AContinue with ₹8 lakh because planning decisions cannot be altered
  2. BRevise materiality (and performance materiality) and reconsider whether the nature, timing and extent of further audit procedures remain appropriateCorrect
  3. CRevise materiality only for the audit report, leaving procedures unchanged
  4. DAsk management to approve the revised materiality figure

Explanation

SA 320 requires the auditor to revise materiality if information becomes available during the audit that would have led to a different amount initially. The auditor must then reconsider performance materiality and whether the nature, timing and extent of further procedures are appropriate. Management has no role in approving it, and planning is not fixed.

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