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

During the audit of Sundaram Pharma Ltd, materiality is Rs 50 lakh. The auditor has accumulated uncorrected misstatements of Rs 46 lakh in aggregate. The latest misstatement was a cut-off error caused by a recurring weakness in the dispatch process. What should the auditor do under SA 450?

The auditor should determine whether the overall audit strategy and audit plan need to be revised. SA 450 requires this when the aggregate of misstatements approaches materiality, or when the nature of the errors suggests other misstatements may exist. Both conditions apply here, so continuing unchanged is not appropriate.

  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, as the aggregate approaches materiality and the nature of the error suggests others may existCorrect
  3. CAsk management to correct only the cut-off error and ignore the remaining misstatements
  4. DIncrease materiality to Rs 60 lakh so that the aggregate stays comfortably below it

Explanation

SA 450 requires the auditor to determine whether the strategy and plan need revision if the aggregate of misstatements approaches materiality, or if the nature and circumstances of misstatements indicate that others may exist which, aggregated, could be material. Both conditions are present here. Option A is wrong because being below materiality does not remove the requirement.

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