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CA Final · Advanced Auditing, Assurance and Professional Ethics · Review of Financial Information

Mehta & Associates is reviewing the financial statements of Ganga Foods Pvt. Ltd. During the review, the practitioner learns that the company's profit is much lower than expected when materiality was first set, which would have led to a different materiality amount. What is the practitioner required to do under SRE 2400 (Revised)?

The practitioner must revise materiality for the financial statements as a whole. SRE 2400 (Revised) requires this when the practitioner becomes aware during the review of information that would have led to a different materiality amount at the outset. Materiality is not fixed at planning, nor dependent on management consent.

  1. AKeep the original materiality, because it is fixed at planning
  2. BRevise materiality for the financial statements as a wholeCorrect
  3. CRevise materiality only if management agrees in writing
  4. DDiscard materiality, since reviews do not use it

Explanation

The standard states the practitioner shall revise materiality for the financial statements as a whole on becoming aware of information during the review that would have caused a different amount to be determined initially. Option A ignores this requirement. Option C adds a management-consent condition that does not exist.

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