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CA Final · Advanced Auditing, Assurance and Professional Ethics · Audit Planning, Strategy and Execution

During the audit of Bharat Pumps Ltd, CA Rohan has accumulated uncorrected misstatements of Rs 18 lakh against an overall materiality of Rs 20 lakh. Management says each item is individually small and wants the audit to proceed unchanged. What should CA Rohan do under SA 450?

CA Rohan should determine whether the overall audit strategy and audit plan need revising. SA 450 requires this when the aggregate of accumulated misstatements approaches materiality, even if no individual misstatement is material, because undetected misstatements could push the total over materiality.

  1. AContinue with the existing strategy and plan, as no single misstatement exceeds materiality
  2. BDetermine whether the overall audit strategy and audit plan need to be revised, because the aggregate approaches materialityCorrect
  3. CIncrease materiality to Rs 25 lakh so that the aggregate stays below it
  4. DIgnore the misstatements and report them only in the management representation letter

Explanation

SA 450 requires the auditor to determine whether the strategy and plan need revision if the aggregate of accumulated misstatements approaches materiality. The test is on the aggregate, not individual items, so option A is wrong. Raising materiality merely to avoid the issue is not a permitted response.

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