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

In auditing Lotus Retail Ltd, the team discovers during fieldwork that a major subsidiary's inventory controls are weaker than assessed at planning. The partner, CA Nisha, had planned to rely on controls and perform limited substantive tests. Which response is most appropriate under SA 300 and SA 315/330?

The auditor should revise the risk assessment, modify the planned nature, timing and extent of further procedures, typically with more substantive testing, and document the changes and reasons, communicating as required. Sticking to the original plan or reducing samples would leave the revised risk unaddressed.

  1. AContinue with the original plan to avoid delay, and mention the weakness in the management letter only
  2. BRevise the risk assessment, modify the planned nature, timing and extent of further audit procedures (more substantive testing), document the changes and reasons, and communicate as needed to those charged with governanceCorrect
  3. CWithdraw from the engagement immediately since the plan cannot be changed once approved
  4. DReduce the sample size because weaker controls indicate the population is homogeneous

Explanation

When evidence contradicts the initial assessment, the auditor revises the risk assessment and modifies planned procedures; SA 300 requires updating the strategy and plan with documentation. Continuing unchanged ignores the changed risk, withdrawal is unwarranted, and weaker controls call for more, not smaller, testing.

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