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CA Final · Advanced Auditing, Assurance and Professional Ethics · Audit Planning, Strategy and Execution

While auditing Sahyadri Foods Ltd, the auditor has set materiality at ₹50 lakh. Misstatements accumulated so far total ₹46 lakh, and all of them are isolated, clearly explained clerical errors. Management has corrected none yet. What should the auditor do under SA 450?

The auditor should determine whether the overall audit strategy and audit plan need revision. SA 450 requires this when accumulated misstatements approach materiality, as ₹46 lakh does against ₹50 lakh, because undetected misstatements could push the total above materiality.

  1. ATake no action, because the aggregate is still below materiality
  2. BDetermine whether the overall audit strategy and audit plan need to be revised, since the aggregate approaches materialityCorrect
  3. CImmediately issue a qualified opinion because the misstatements are close to materiality
  4. DIncrease materiality to ₹60 lakh so that the aggregate stays comfortably below it

Explanation

Under SA 450, the auditor shall determine whether the overall audit strategy and audit plan need revision when the aggregate of accumulated misstatements approaches materiality. Here ₹46 lakh against ₹50 lakh clearly approaches it. Option A ignores this trigger. Option D would be an inappropriate manipulation of materiality to avoid the issue.

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