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CA Intermediate · Auditing and Ethics · Completion and Review

In the audit of Lotus Retail Ltd, CA Pooja has reached the final review stage. Her analytical procedures near the end of the audit show that sales to a new distributor spiked abnormally in the last week of March, a relationship not identified earlier. What is the correct audit response under SA 520 on analytical procedures near the end of the audit?

The auditor should reassess the risk of material misstatement and consider whether additional or modified audit procedures are required. Final analytical procedures help form an overall conclusion, and a newly identified unusual relationship must be investigated rather than ignored, absorbed by raising materiality, or reported externally without inquiry.

  1. ATreat it as unimportant, as final analytical procedures are only for disclosure checking
  2. BReassess the risk of material misstatement and consider whether additional or modified audit procedures are neededCorrect
  3. CIncrease overall materiality so that the spike falls below it
  4. DReport the matter directly to SEBI without further inquiry

Explanation

SA 520 requires analytical procedures near the end of the audit to help form an overall conclusion. If they reveal a previously unrecognised risk, the auditor should revise the risk assessment and modify planned procedures under SA 315 and SA 330. Raising materiality to avoid the issue is improper, and direct reporting to SEBI without inquiry is premature.

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