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CS Professional · Compliance Management, Audit and Due Diligence · Audit Engagement

The partner of Mehta & Co. explains to a new trainee why the engagement letter for Tapi Engineering Ltd states that some material misstatements may go undetected even if the audit is properly planned and performed. What is the basis for this statement under SA 210?

The statement reflects the inherent limitations of an audit together with those of internal control, which create an unavoidable risk that some material misstatements may go undetected even when the audit is properly planned and performed in accordance with the Standards on Auditing.

  1. AIt reflects the inherent limitations of an audit together with inherent limitations of internal control, creating an unavoidable riskCorrect
  2. BIt shows that the auditor has not planned the audit adequately
  3. CIt transfers the auditor's responsibility to the company's management
  4. DIt is included only when the auditor expects fraud in the company

Explanation

SA 210 says the letter may mention that, because of inherent limitations of an audit and of internal control, there is an unavoidable risk that some material misstatements may not be detected even though the audit is properly planned and performed under SAs. It is not an admission of poor planning or an expectation of fraud.

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