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CS Professional · Compliance Management, Audit and Due Diligence · Audit Principles and Techniques

Kaveri Pharma Ltd has only 12 high-value capital equipment purchases during the year, each far above materiality, and the risk of material misstatement for the assertion is assessed as high. The auditor is deciding how to select items to test. Which approach is most consistent with SA 500?

The auditor should examine all 12 items. SA 500 allows 100% examination, specific items, or sampling, chosen by reference to the risk of material misstatement and practicality. A small population of high-value items with high assessed risk suits full examination, and sampling is not compulsory.

  1. AExamine all 12 items, since 100% examination may be appropriate given the risk and the small population of high-value itemsCorrect
  2. BUse audit sampling only, because SA 500 requires sampling for every test of details
  3. CTest only items selected on management's recommendation to save time
  4. DAvoid testing the items and rely only on the previous year's audit evidence

Explanation

SA 500 says the means chosen depend on circumstances such as the risks of material misstatement and the practicality and efficiency of each means. With a small population of large items and high risk, examining all items is appropriate. Sampling is not mandatory in every case, so the second option is wrong.

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