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CA Final · Advanced Auditing, Assurance and Professional Ethics · General Auditing Principles and Auditors Responsibilities

In auditing Lotus Retail Ltd, CA Vikram uses an audit risk model expressing the relationship of components of audit risk in mathematical terms. His junior asks about the purpose of assessing risks of material misstatement at the assertion level. Which response is correct under SA 200?

Assertion-level risks of material misstatement are assessed to determine the nature, timing and extent of further audit procedures required to obtain sufficient appropriate audit evidence. This evidence lets the auditor express an opinion on the financial statements at an acceptably low level of audit risk.

  1. AIt is done only to decide the audit fee and team size
  2. BIt determines the nature, timing and extent of further audit procedures needed to obtain sufficient appropriate audit evidence, enabling an opinion at an acceptably low level of audit riskCorrect
  3. CIt eliminates the need for further audit procedures on low-risk assertions
  4. DIt is required only when the auditor suspects fraud

Explanation

SA 200 states that assessed assertion-level risks determine nature, timing and extent of further procedures to obtain sufficient appropriate evidence, supporting an opinion at an acceptably low audit risk. Option C is wrong because assessment does not remove the need for procedures. Option D wrongly limits it to fraud.

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