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

CA Tanvi is planning the audit of Orion Steels Ltd. She decides to design further audit procedures after assessing risks at the assertion level. According to SA 200, why are risks of material misstatement at the assertion level assessed?

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. This lets the auditor express an opinion at an acceptably low level of audit risk, not at zero risk.

  1. ATo decide the audit fee payable by the entity
  2. BTo determine the nature, timing and extent of further audit procedures needed to obtain sufficient appropriate audit evidenceCorrect
  3. CTo shift responsibility for detecting misstatements to management
  4. DTo eliminate audit risk completely so that no misstatement can remain

Explanation

SA 200 explains that assertion-level risks 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 risk entirely, so the last option is wrong.

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