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CA Final · Advanced Auditing, Assurance and Professional Ethics · General Auditing Principles and Auditors Responsibilities

CA Meera is auditing Bharat Steel Ltd and plans her audit procedures. As per SA 200, why does she assess risks of material misstatement at the assertion level?

Risks of material misstatement at the assertion level are assessed to determine the nature, timing and extent of further audit procedures required to obtain sufficient appropriate audit evidence. That evidence lets the auditor express an opinion at an acceptably low level of audit risk, not at zero risk.

  1. ATo determine the nature, timing and extent of further audit procedures needed to obtain sufficient appropriate audit evidenceCorrect
  2. BTo eliminate the need for any evidence on low-risk balances
  3. CTo transfer responsibility for the financial statements to management
  4. DTo ensure that the audit risk becomes zero

Explanation

SA 200 A36 states that risks of material misstatement at the assertion level are assessed to determine the nature, timing and extent of further audit procedures needed for sufficient appropriate evidence, enabling an opinion at an acceptably low level of audit risk. It does not eliminate evidence needs or reduce audit risk to zero, only to an acceptably low level.

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