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CA Final · Advanced Auditing, Assurance and Professional Ethics · Review of Financial Information

CA Rohan is reviewing the financial statements of Kaveri Foods Pvt Ltd. During the review, Rohan learns the entity's profit before tax is far lower than the figure used when he set materiality at planning. He now believes a different amount would have been set originally. What should Rohan do?

Rohan should revise materiality for the financial statements as a whole. SRE 2400 (Revised) requires revision when the practitioner becomes aware during the review of information that would have caused a different amount to be determined initially. It is not fixed at planning and needs no management approval.

  1. ARetain the original materiality, as it cannot be changed once set
  2. BRevise materiality for the financial statements as a whole, since the information would have caused a different amount to be determined initiallyCorrect
  3. CRevise materiality only if management agrees in writing
  4. DIgnore materiality altogether because reviews do not use it

Explanation

SRE 2400 (Revised) requires the practitioner to revise materiality for the financial statements as a whole if information during the review would have led to a different amount initially. Option A contradicts this. Option C wrongly makes revision depend on management consent.

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