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

During planning of the audit of Sundaram Pharma Ltd., CA Vivek set overall materiality at ₹10 lakh and performance materiality at ₹7 lakh. Midway through the audit, the company's results for a quarter become available showing profit far lower than expected, and as a result Vivek concludes that a lower materiality figure of ₹6 lakh would have been appropriate. Which response is correct under SA 320 and SA 300?

Vivek should revise materiality to the lower figure, reconsider performance materiality and the nature, timing and extent of further audit procedures, and update the audit strategy and plan. SA 320 requires revision when new information would have led to a different initial figure.

  1. ARevise materiality, reconsider performance materiality and the nature, timing and extent of further audit procedures, and amend the plan as neededCorrect
  2. BRetain ₹10 lakh since materiality once set at planning cannot be changed
  3. CRevise only the audit report wording and leave the procedures unchanged
  4. DAsk management to approve the revised materiality before applying it

Explanation

SA 320 requires the auditor to revise materiality if information during the audit would have caused a different figure initially. Performance materiality and the nature, timing and extent of further procedures must then be reconsidered, and the plan updated as per SA 300. Keeping the original figure ignores this, and management has no approval role.

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