CS Professional · Compliance Management, Audit and Due Diligence · Audit Principles and Techniques

In planning the audit of Narmada Cement Ltd, the audit senior assesses inherent risk as high and control risk as moderate, and records them separately as percentages, while the firm's methodology elsewhere uses a single combined assessment. Under SA 200, what is the position?

It is acceptable. SA 200 permits separate or combined assessments of inherent and control risk, in quantitative terms such as percentages or in non-quantitative terms, depending on the auditor's preferred techniques. The need for appropriate risk assessments is more important than the approach used.

1. AAcceptable, because the auditor may make separate or combined assessments, and the need for appropriate risk assessment matters more than the approachCorrect
2. BNot acceptable, because risks must always be combined and never expressed in percentages
3. CNot acceptable, because risk assessments must be non-quantitative
4. DAcceptable only if the assessment is approved by the company's audit committee