ACCA Strategic Professional · Advanced Audit and Assurance (International) · Specific assignments
Kestrel & Partners is reviewing the financial statements of Orchid Trading under ISRE 2400 (Revised). During inquiries, the finance manager gives an explanation of a large fall in gross margin that the practitioner finds implausible and inconsistent with other information obtained. What is the practitioner's most appropriate next step?
The practitioner should perform additional procedures, such as further inquiries or other work, because they have reason to believe the statements may be materially misstated. They should not simply accept the explanation. If the matter remains unresolved, the conclusion is modified rather than the engagement automatically becoming an audit.
- AAccept the explanation, since review procedures are limited to inquiry and analytical procedures
- BPerform additional procedures, such as further inquiries or other procedures, to address the matter, since the practitioner has reason to believe the statements may be materially misstatedCorrect
- CConvert the engagement into an audit and obtain reasonable assurance on all balances
- DWithdraw immediately without considering any further work
Explanation
ISRE 2400 requires the practitioner to design and perform additional procedures when they become aware of a matter making them believe the statements may be materially misstated. Accepting an implausible explanation fails this. Switching to an audit or withdrawing automatically is not required; the first response is further work, and the conclusion is modified if the matter is not resolved.
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