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

In the audit of Konkan Cement Ltd, the auditor's initial plan assumed low risk in trade receivables. In September, she finds several cut-off errors arising from a deliberate practice of booking next-month dispatches as current-month sales. Individually the errors are small and total ₹8 lakh against materiality of ₹60 lakh. What is the most appropriate conclusion under SA 450?

The auditor should consider revising the overall strategy and plan. Under SA 450, the nature of the misstatements and the circumstances, here a deliberate cut-off practice, indicate that further misstatements may exist which in aggregate could be material, even though the amount found is small.

  1. ANo revision is needed, because the total is far below materiality
  2. BConsider revising the strategy and plan, since the nature and circumstances of the misstatements indicate other material misstatements may existCorrect
  3. CRevise the plan only if the total exceeds 50% of materiality
  4. DCorrect the ₹8 lakh in the working papers and leave the plan unchanged since the errors are trivial

Explanation

SA 450 requires considering revision of strategy and plan when the nature of misstatements and circumstances of occurrence indicate that other misstatements may exist which, when aggregated, could be material. A deliberate cut-off practice suggests wider issues, regardless of the small amount found. Option A considers only size and ignores nature. Option C invents a threshold not in the standard.

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