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CA Intermediate · Auditing and Ethics · Risk Assessment and Internal Control

While planning the audit of Kalyani Textiles Ltd, the engagement team discusses where the financial statements might be susceptible to material misstatement due to fraud. The engagement partner wants this discussion to happen among key team members before detailed procedures begin. Under SA 315 (Revised), which statement best describes the auditor's requirement?

The auditor must hold a discussion among the engagement team on how the financial statements may be susceptible to material misstatement, with the engagement partner and other key members taking part. It is a planning requirement under SA 315 (Revised) and is not waived because the team is continuing from the prior year.

  1. AHold the engagement team discussion on susceptibility of the financial statements to material misstatement, and the partner and other key members must take part in itCorrect
  2. BSkip the discussion if the same team audited the entity in the previous year
  3. CDiscuss only with the entity's management and not within the engagement team
  4. DHold the discussion only after the audit report has been drafted

Explanation

SA 315 (Revised) requires a discussion among the engagement team about the susceptibility of the entity's financial statements to material misstatement, with the engagement partner and other key members involved. Prior-year familiarity does not remove the requirement, so the option on skipping is wrong. The discussion belongs to the planning stage, not after drafting the report.

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