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CA Intermediate · Auditing and Ethics · Audit Strategy, Audit Planning and Audit Programme

Ganga Pharma Ltd. is a long-standing audit client of Rao & Associates. In the current year the audit team discovers, during planning, that a major new customer contract will materially change the revenue recognition pattern and that a significant new related party was added. The audit strategy was prepared earlier. What is the correct response under SA 300?

The auditor should revise the overall audit strategy and audit plan as needed during the audit and document the significant changes and reasons. SA 300 treats planning as a continual and iterative process. Sticking with the earlier strategy ignores the new risks, and withdrawal is unnecessary.

  1. AContinue with the original strategy since it was approved by the partner and cannot be changed
  2. BUpdate and change the overall audit strategy and audit plan as necessary during the course of the audit, and document the significant changes and reasonsCorrect
  3. CChange the plan but do not document the changes, to avoid confusing the team
  4. DWithdraw from the engagement immediately because planning has been disturbed

Explanation

SA 300 states that planning is continual and iterative. The auditor must update and change the overall audit strategy and audit plan as necessary during the audit, for example due to unexpected events or changed conditions, and document the significant changes and reasons. Rigid adherence ignores new risks, and withdrawal is not required.

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