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CA Intermediate · Auditing and Ethics · Audit Strategy, Audit Planning and Audit Programme

While planning the audit of Himalaya Foods Pvt. Ltd., the engagement partner decides that the audit team will not hold any discussion among its members about the susceptibility of the financial statements to material misstatement, since the team is experienced. Which statement best reflects the correct position under the Standards on Auditing?

The decision is incorrect. Standards on Auditing require the engagement partner and key team members to discuss the entity's susceptibility to material misstatement due to fraud or error during planning. Team experience, management representations or a late discussion cannot substitute for this required discussion.

  1. AThe decision is acceptable because experienced teams need no discussion
  2. BThe decision is acceptable if the discussion is replaced by a management representation
  3. CThe decision is incorrect because the engagement partner and key team members must discuss susceptibility to material misstatement due to fraud or errorCorrect
  4. DThe decision is acceptable provided the discussion is held only after the audit report is signed

Explanation

SA 315 (Revised) and SA 240 require the engagement partner and key team members to discuss the entity's susceptibility to material misstatement, including fraud, and the applicable framework. Experience does not remove this requirement. A management representation cannot replace it, and holding it after the report is too late for planning.

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