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

CA Nandini is auditing Orchid Pharma Ltd., which started a new ERP system this year. She plans to conduct the audit by involving a junior team on routine areas and a senior on the ERP and revenue areas. Which of the following best reflects the requirement of SA 300 regarding the nature, timing and extent of direction and supervision of team members?

Direction and supervision should depend on the entity's size and complexity, the assessed risks of material misstatement in each area and the capabilities of team members. It is not uniform for all audits and is not fixed by audit fees or by the client's management.

  1. AIt depends on factors such as the size and complexity of the entity, areas of assessed risk of material misstatement and the capabilities of team membersCorrect
  2. BIt must be identical for every audit regardless of entity or risk
  3. CIt is determined solely by the audit fee agreed
  4. DIt is determined by management of the entity

Explanation

SA 300 states that the nature, timing and extent of direction and supervision depend on factors such as size and complexity of the entity, area of audit, assessed risks of material misstatement and the capabilities and competence of the individual team members. Fee and management preferences are not determining factors, and a uniform approach ignores risk.

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