CA Y, statutory auditor of a company, is in process of determining materiality for financial statements while planning audit. Since materiality is a…

CA Intermediate · Auditing and Ethics · MTP · September 2024
CA Y, statutory auditor of a company, is in process of determining materiality for financial statements while planning audit. Since materiality is a matter of professional judgment and is affected by auditor's perception of financial information needs of users of financial statements, he is reasonably making certain assumptions about users of financial statements. Which reasonable matters are likely to be assumed by him in respect of users?

Suggested Answer and Working Notes:

(a) The auditor's determination of materiality is a matter of professional judgment and is affected by the auditor's perception of the financial information needs of users of the financial statements. In this context, it is reasonable for CA Y, the auditor, to assume that users: (a) Have a reasonable knowledge of business and economic activities and accounting and a willingness to study the information in the financial statements with reasonable diligence (b) Understand that financial statements are prepared, presented and audited to levels of materiality (c) Recognize the uncertainties inherent in the measurement of amounts based on the use of estimates, judgment and the consideration of future events and (d) Make reasonable economic decisions on the basis of the information in the financial statements.

Topics: Risk Assessment and Internal Control

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