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CA Intermediate · Auditing and Ethics · Nature, Objective and Scope of Audit

Kaveri & Associates, chartered accountants, are auditing Sundaram Textiles Ltd. During planning, the engagement partner tells the team that, because the client has a long clean record, the team may drop professional scepticism for routine areas. Which response is correct under SA 200?

Professional scepticism must be maintained throughout the audit. SA 200 requires the auditor to recognise that material misstatement may exist even if management has been honest in the past, so it cannot be dropped for routine areas or only applied when fraud is suspected.

  1. AAgree, since past honesty of management removes the need for scepticism in routine areas
  2. BDisagree; the auditor must maintain professional scepticism throughout the audit, recognising that a material misstatement may exist despite past experience of management's honestyCorrect
  3. CAgree, but only for areas where the amounts are below the materiality level
  4. DDisagree; scepticism is needed only when fraud is actually suspected

Explanation

SA 200 requires the auditor to plan and perform the audit with professional scepticism, recognising that circumstances may exist that cause financial statements to be materially misstated. Past experience of management's honesty does not remove this requirement. Option 4 is wrong because scepticism is required throughout, not merely upon suspicion of fraud.

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