Skip to content

CA Intermediate · Auditing and Ethics · Nature, Objective and Scope of Audit

Under SA 200, the auditor of Narmada Foods Ltd is asked what is meant by 'audit risk'. Which description is correct?

Audit risk is the risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated. It is a function of the risks of material misstatement and detection risk. Fee recovery or deadline risks are business risks, not audit risk as defined in SA 200.

  1. AThe risk that the auditor will be sued by the client for charging high fees
  2. BThe risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstatedCorrect
  3. CThe risk that the client will not pay the audit fees
  4. DThe risk that the auditor will fail to complete the audit before the due date

Explanation

SA 200 defines audit risk as the risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. It is a function of the risks of material misstatement and detection risk. The other options describe business or fee risks, not audit risk.

Did you get it right without looking?

One question tells you little. A timed set on Nature, Objective and Scope of Audit shows your real accuracy, how long you take and where you lose marks.

Practise Nature, Objective and Scope of AuditFree diagnostic mock

More Nature, Objective and Scope of Audit questions