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

Gupta & Sons audit Lotus Pharma Ltd. During execution, the team finds that actual turnover is far higher than the figure used in planning, because of a large new export contract signed after the audit plan was approved. Planning materiality was set at 1% of the budgeted turnover. Which is the most appropriate response under SA 300 and SA 320?

The auditor should revise materiality and, where necessary, the overall strategy and audit plan, documenting significant changes and reasons. Planning is continuous, and SA 320 requires revision when new information would have led to a different materiality, so keeping the original figure or merely cutting samples is wrong.

  1. AContinue with the original materiality since the plan was approved by the partner
  2. BRevise the materiality, and where needed the overall strategy and audit plan, and document the significant changes and the reasonsCorrect
  3. CReduce the sample sizes without revising anything else to save time
  4. DInform the Registrar of Companies about the change before proceeding

Explanation

SA 300 requires the auditor to update and change the overall strategy and audit plan as necessary during the audit, and SA 320 requires revising materiality if information arises that would have led to a different figure. Significant changes and reasons must be documented. Retaining the old figure ignores new information, and no reporting to the Registrar is needed for such a change.

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