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CA Final · Advanced Auditing, Assurance and Professional Ethics · Review of Financial Information

Gupta & Co is reviewing the financial statements of Arjun Textiles Ltd. Materiality was set at the start of the review. Midway, the practitioner learns that a major lender has begun reviewing covenant ratios, information which, had it been known earlier, would have led to a different materiality amount. What must the practitioner do?

The practitioner shall revise materiality for the financial statements as a whole. SRE 2400 (Revised) requires this whenever the practitioner becomes aware, during the review, of information that would have caused a different materiality amount to be determined at the start of the engagement.

  1. ARetain the original materiality to keep the engagement consistent
  2. BRevise materiality for the financial statements as a whole on becoming aware of such informationCorrect
  3. CRevise materiality only if management agrees in writing
  4. DRevise materiality only at the reporting stage after drafting the conclusion

Explanation

SRE 2400 (Revised) requires the practitioner to revise materiality for the financial statements as a whole on becoming aware of information during the review that would have caused a different amount to be determined initially. Retaining the original amount contradicts this. Management's consent or deferral to the reporting stage is not required by the text.

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