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

During the audit of Himalaya Pharma Ltd, materiality is Rs 50 lakh. The auditor has accumulated uncorrected misstatements of Rs 46 lakh so far, with substantial testing still pending in inventory and payables. Management says the amount is below materiality and so no change is needed. What should the auditor do as per SA 450?

The auditor should determine whether the overall audit strategy and audit plan need revision. SA 450 requires this when the aggregate of accumulated misstatements approaches materiality, even if it has not yet exceeded it, because undetected misstatements could make the total material.

  1. AContinue with the existing strategy and plan since the aggregate is still below materiality
  2. BDetermine whether the overall audit strategy and audit plan need to be revised, since the aggregate approaches materialityCorrect
  3. CIncrease materiality to Rs 60 lakh so that the misstatements become clearly trivial
  4. DAsk management to correct only the largest misstatement and stop accumulating the others

Explanation

SA 450 requires the auditor to determine whether the strategy and plan need revision if the aggregate of misstatements accumulated approaches materiality. At Rs 46 lakh against Rs 50 lakh, it does approach it. Merely being below materiality does not justify continuing unchanged, and raising materiality to absorb misstatements is not a permitted response.

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