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

CA Nisha is auditing Bhairav Steels Ltd. During the audit, a major customer unexpectedly goes into insolvency, and this significantly raises the risk of misstatement in trade receivables, which she had earlier assessed as low risk in her audit plan. What is the correct response under SA 300?

The auditor should update the overall audit strategy and audit plan as necessary during the audit and document the significant changes and reasons. SA 300 treats planning as continual and iterative, so the heightened receivables risk must be reflected in revised procedures.

  1. AUpdate and change the overall audit strategy and audit plan as necessary during the course of the audit, and document the significant changes and reasonsCorrect
  2. BRetain the original plan unchanged, as a plan once approved cannot be altered
  3. CReduce the extent of confirmations, since the customer is insolvent
  4. DWithdraw from the engagement immediately

Explanation

SA 300 requires the auditor to update and change the overall audit strategy and audit plan as necessary during the course of the audit, and to document the significant changes and reasons. Planning is continual and iterative. Keeping the plan unchanged ignores the revised risk, and reducing procedures is the opposite of what the higher risk demands.

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