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

Mehta & Associates is planning the audit of Sagar Foods Ltd. The audit manager wants to start by designing detailed tests and only later think about where misstatements may arise. Which approach is consistent with SA 200's requirements on planning and performance?

The consistent approach is to identify and assess the risks of material misstatement at both the financial statement and assertion levels by performing risk assessment procedures, and then design appropriate responses to those risks. Detailed tests should follow the risk assessment, not precede it.

  1. AIdentify and assess risks of material misstatement at the financial statement and assertion levels through risk assessment procedures, then design responses to themCorrect
  2. BFix the sample sizes first and assess risks only if the tests reveal exceptions
  3. CRely on the prior-year audit programme without fresh risk assessment
  4. DAssess risks only at the financial statement level and ignore assertions

Explanation

SA 200 requires the auditor to have a basis for identifying and assessing risks of material misstatement at the financial statement and assertion levels by performing risk assessment procedures and related activities, and then to respond to the assessed risks. Starting with fixed tests, reusing last year's programme or skipping assertion level work does not meet this.

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