CA Intermediate · Auditing and Ethics · Completion and Review
During the audit of Himalaya Foods Pvt Ltd, the auditor performs final analytical procedures near the end of the audit, as required by SA 520. The procedures reveal a previously unrecognised fluctuation in gross margin that is inconsistent with other information. What should the auditor do?
The auditor should revise the assessment of the risks of material misstatement and perform additional or modified audit procedures. Final analytical procedures are meant to confirm the overall view of the financial statements, so an unexpected, unexplained fluctuation signals a risk that must be investigated before concluding.
- AIgnore it, since final analytical procedures are only meant to support the conclusion on overall presentation
- BReport the fluctuation to those charged with governance without further work
- CRevise the assessment of risks of material misstatement and modify planned audit procedures accordinglyCorrect
- DWithdraw from the engagement because the audit is already substantially complete
Explanation
Analytical procedures near the end help form an overall conclusion. If they reveal a previously unrecognised risk, the auditor revises the risk assessment and modifies further planned procedures as per SA 315 principles. Merely reporting or ignoring the finding would leave the risk unaddressed, and withdrawal is not the normal response.
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