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CA Final · Advanced Auditing, Assurance and Professional Ethics · Audit Planning, Strategy and Execution

In auditing Narmada Infra Ltd, CA Vikram finds the company's fair valuation of unquoted derivative instruments is a significant accounting estimate. The engagement team has no member with valuation expertise. At the planning stage, which action is most consistent with SA 540 and SA 300?

The auditor should ascertain the resources needed, including involving those with specialised skills or knowledge, and the engagement partner should be satisfied that the team and any experts collectively have the capabilities, competence and time. Management's responsibility does not remove this planning duty.

  1. AProceed using management's valuation, since estimates are management's responsibility alone
  2. BAscertain the resources needed, including involving people with specialised skills, and have the engagement partner be satisfied that the team collectively has the capabilities, competence and timeCorrect
  3. CDisclose in the audit report that valuation expertise was unavailable and take no further action
  4. DDelegate the evaluation of the estimate entirely to the company's valuer and accept the result

Explanation

SA 540 notes that in planning the auditor ascertains the nature, timing and extent of resources necessary, which may include specialised skills, and SA 220 requires the engagement partner to be satisfied that the team collectively has the capabilities, competence and time. Option 3 fails because the auditor must still evaluate significant estimates.

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