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

In a review engagement for Narmada Pumps Ltd, the practitioner initially fixed materiality for the financial statements as a whole. Midway, the practitioner learns of a debt covenant breach, information which would have led to a different materiality amount at the start. What should the practitioner do?

The practitioner shall revise materiality for the financial statements as a whole when becoming aware during the review of information that would have led to determining a different amount initially. Keeping the original figure for consistency, or waiting for management consent, is not what the standard requires.

  1. ARetain the original materiality to keep consistency with the engagement plan
  2. BRevise materiality for the financial statements as a wholeCorrect
  3. CRevise materiality only if management agrees in writing
  4. DIgnore the information until the report date

Explanation

The text requires the practitioner to revise materiality for the financial statements as a whole on becoming aware during the review of information that would have caused a different amount to be determined initially. Retaining the original amount contradicts this, and management's consent is not a condition.

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