Skip to content

CMA Intermediate · Corporate Accounting and Auditing · Brief Introduction to Auditing Standards

CMA Rohit, an auditor, notes in his file that the risk of material misstatement for receivables is 'high' without giving a percentage. Which view is consistent with SA 200?

The assessment is acceptable. SA 200 allows the risks of material misstatement to be expressed either in percentages or in nonquantitative terms such as high. What matters is that the auditor makes an appropriate risk assessment, not the particular way it is expressed.

  1. AThe assessment is invalid because it must always be stated in percentages
  2. BThe assessment is acceptable because it may be expressed in quantitative or nonquantitative termsCorrect
  3. CThe assessment is invalid because inherent and control risk must always be assessed separately
  4. DThe assessment is acceptable only if detection risk is also assessed as high

Explanation

SA 200 permits the assessment of the risks of material misstatement to be expressed in quantitative terms such as percentages, or in nonquantitative terms. The need for appropriate risk assessment matters more than the method. Separate assessment of inherent and control risk is optional, not mandatory.

Did you get it right without looking?

One question tells you little. A timed set on Brief Introduction to Auditing Standards shows your real accuracy, how long you take and where you lose marks.

Practise Brief Introduction to Auditing StandardsFree diagnostic mock

More Brief Introduction to Auditing Standards questions