Skip to content

CS Professional · Compliance Management, Audit and Due Diligence · Forming an Opinion and Reporting

In auditing Sundaram Foods Ltd, the auditor notes that management has consistently chosen estimates for provisions that always land at the favourable end of a reasonable range, boosting profit each year. Under SA 700 (Revised), which evaluation is most directly engaged?

The auditor must consider the qualitative aspects of the entity's accounting practices, including indicators of possible bias in management's judgments. Repeatedly choosing favourable ends of estimate ranges is a possible bias indicator that affects whether the statements are prepared in accordance with the framework.

  1. AWhether the qualitative aspects of the entity's accounting practices show indicators of possible bias in management's judgmentsCorrect
  2. BWhether the auditor's report is signed on the same date as the board meeting
  3. CWhether the company's title of directors is appropriate
  4. DWhether the auditor's fee is reasonable

Explanation

SA 700 (Revised) requires the evaluation of whether the financial statements are prepared in accordance with the framework to include consideration of the qualitative aspects of accounting practices, including indicators of possible bias in management's judgments. Consistently favourable estimates are such an indicator. The other options are unrelated to this evaluation.

Did you get it right without looking?

One question tells you little. A timed set on Forming an Opinion and Reporting shows your real accuracy, how long you take and where you lose marks.

Practise Forming an Opinion and ReportingFree diagnostic mock

More Forming an Opinion and Reporting questions