CS Professional · Compliance Management, Audit and Due Diligence · Audit Principles and Techniques
While planning the audit of Kaveri Textiles Ltd, the engagement partner states that, because the auditor's opinion covers the financial statements as a whole, the team need not design procedures to detect small misstatements that are clearly not material to the financial statements as a whole. Under SA 200, this view is:
The view is correct. SA 200 states that the auditor's opinion deals with the financial statements as a whole, so the auditor is not responsible for detecting misstatements that are not material to the financial statements as a whole. Materiality applies in planning, performing and evaluating the audit.
- ACorrect, because the auditor is not responsible for detecting misstatements that are not material to the financial statements as a wholeCorrect
- BIncorrect, because the auditor must detect every misstatement irrespective of size
- CIncorrect, because materiality is applied only when evaluating misstatements at the end of the audit
- DCorrect, because materiality is applied only to errors and never to omissions
Explanation
SA 200 says the auditor's opinion deals with the financial statements as a whole, so the auditor is not responsible for detecting misstatements that are not material to them as a whole. Materiality is applied in planning and performing the audit as well as in evaluation, so the second and third options are wrong. Omissions are also covered by materiality, so the fourth option is wrong.
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