CA Intermediate · Auditing and Ethics · Completion and Review
During the audit of Kavya Textiles Ltd, the auditor of the company is performing the final analytical procedures near the end of the audit. These procedures reveal a significant gross margin increase that the auditor had not expected and which was not identified earlier. What is the most appropriate response under SA 520 (Analytical Procedures)?
The auditor should reconsider the assessed risks of material misstatement and, where necessary, modify the planned further procedures. Under SA 520, final analytical procedures help form an overall conclusion, and an unexpected fluctuation not identified earlier signals a possible unrecognised risk that needs follow-up.
- AIgnore the result because final analytical procedures are only for the auditor's information and need no follow-up
- BReconsider the assessed risks of material misstatement and, if needed, modify the planned audit proceduresCorrect
- CReport the fluctuation directly to the Registrar of Companies
- DWithdraw from the engagement immediately
Explanation
SA 520 requires analytical procedures near the end of the audit to help form an overall conclusion on whether the financial statements are consistent with the auditor's understanding of the entity. If they reveal a previously unrecognised risk, the auditor revises the risk assessment and modifies planned procedures as per SA 315. Ignoring the result is wrong because the finding may signal misstatement.
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