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CA Final · Advanced Auditing, Assurance and Professional Ethics · Review of Financial Information

In reviewing the financial statements of Narmada Pharma Ltd., the engagement partner initially set materiality at ₹12 lakh. During the review, she learns that the company is negotiating a covenant-linked loan which, had she known earlier, would have led her to set a lower amount. What should she do?

She must revise materiality for the financial statements as a whole. The standard requires revision when information that comes to the practitioner's attention during the review would have caused a different amount to be determined initially, and no management consent is needed.

  1. AKeep the original materiality, as it was fixed at the planning stage
  2. BRevise materiality for the financial statements as a whole, since information obtained would have led to a different amount initiallyCorrect
  3. CRevise materiality only if the management agrees in writing
  4. DIgnore materiality entirely because reviews do not involve materiality

Explanation

SRE 2400 (Revised) requires the practitioner to revise materiality for the financial statements as a whole on becoming aware of information during the review that would have caused a different amount to be determined initially. Option A ignores this. Option D is wrong because financial statements are reviewed to levels of materiality.

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