CA Intermediate · Auditing and Ethics · Completion and Review
CA Meera is completing the audit of Anand Foods Ltd. At the final stage she is performing analytical procedures as an overall review under SA 520. The results show a relationship between the revenue and trade receivables that is inconsistent with her knowledge of the entity and which had not been identified earlier. Which is the correct response?
The auditor should reconsider the assessed risks of material misstatement and, where necessary, modify the planned further audit procedures. Analytical procedures near the end of the audit help form an overall conclusion, and an unexpected relationship signals a possible risk that must be investigated rather than ignored or explained away by raising materiality.
- AAccept it since overall review analytics are only for presentation
- BReconsider the assessed risks of material misstatement and, if necessary, modify the planned audit proceduresCorrect
- CReport the inconsistency directly to the Registrar of Companies
- DIncrease the materiality so that the variance falls below the threshold
Explanation
Under SA 520, if analytical procedures at the overall review stage identify a previously unrecognised risk of material misstatement, the auditor revises the risk assessment and modifies the planned procedures as required by SA 315/330. Raising materiality merely to absorb a variance is improper, and reporting to the Registrar is not the first response.
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