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

In the audit of Ganga Steels Ltd, materiality is Rs 40 lakh. Early testing reveals a Rs 6 lakh cut-off error caused by a weak year-end shipping control, and the auditor suspects similar errors elsewhere. Aggregate accumulated misstatements are Rs 9 lakh. Which conclusion is correct under SA 450?

The auditor must determine whether the strategy and plan need revision. SA 450 requires this when the nature and circumstances of identified misstatements indicate other misstatements may exist that could be material in aggregate, even if the current total is well below materiality.

  1. ANo revision is needed because Rs 9 lakh is far below Rs 40 lakh
  2. BRevision of the strategy and plan must be considered because the nature of the misstatement and circumstances suggest other misstatements may exist that, aggregated, could be materialCorrect
  3. CRevision is required only when the aggregate exceeds materiality
  4. DThe error should be ignored as it arose from a control weakness, not from fraud

Explanation

SA 450 has two triggers: other misstatements may exist that, aggregated, could be material given the nature and circumstances of those found, or the aggregate approaches materiality. Here the first trigger applies although the aggregate of Rs 9 lakh is far below Rs 40 lakh. Option A considers only the second trigger.

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