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CA Final · Advanced Auditing, Assurance and Professional Ethics · General Auditing Principles and Auditors Responsibilities

While auditing Deccan Steel Ltd, CA Arjun assesses risks of material misstatement at the assertion level. His junior asks about the purpose of this assessment and the use of an audit risk model. Which conclusion is consistent with SA 200?

Risks of material misstatement at the assertion level are assessed to determine the nature, timing and extent of further audit procedures needed to obtain sufficient appropriate evidence. Auditors may use a mathematical audit risk model, but SA 200 presents it as optional.

  1. AAssertion-level risks are assessed only to decide the auditor's fee and team size
  2. BAssertion-level risk assessment determines the nature, timing and extent of further audit procedures, and a mathematical risk model must always be used
  3. CAssertion-level risk assessment determines the nature, timing and extent of further audit procedures, and use of a mathematical risk model is optionalCorrect
  4. DAssertion-level risk assessment replaces the need for sufficient appropriate audit evidence

Explanation

SA 200 states that risks of material misstatement at the assertion level are assessed to determine the nature, timing and extent of further audit procedures needed to obtain sufficient appropriate evidence. It adds that auditors may make use of a mathematical model, and that some find it useful, so it is not mandatory. The option saying it must always be used is wrong, and assessment does not replace evidence.

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