Pandey & Co., Chartered Accountants, have been appointed as the Statutory Auditors of Suchi Ltd. for the financial year 2024–25. The audit work…

CA Final · Advanced Auditing, Assurance and Professional Ethics · MTP · May 2026
Pandey & Co., Chartered Accountants, have been appointed as the Statutory Auditors of Suchi Ltd. for the financial year 2024–25. The audit work has been completed, and the audit team is preparing the audit report. The management has also prepared a draft annual report to be circulated to shareholders. While reviewing the draft Annual Report, the audit in-charge observed that the company has included an item in its Annual Report indicating a downward trend in market prices of key commodities/raw material as compared to previous year. However, the audited financial statements indicate that the company's profit margin has actually declined during the year. The matter was brought to the attention of the Audit Manager, who discussed it with the Engagement Partner. The partner opined that such disclosures form part of management's reporting and fall outside the scope of the auditor's responsibility, and therefore no further action is required from the auditor's side. Do you agree with the view expressed by the Engagement Partner? Discuss the Auditor's duties with regard to reporting with reference to relevant Standard on Auditing.

Suggested Answer and Working Notes:

Responding When the Auditor Concludes That a Material Misstatement of the Other Information Exists: As per SA 720, “The Auditor's Responsibility in Relation to Other Information”, descriptions of trends in market prices of key commodities or raw materials is an example of amounts or other Items that may be included in the other information. The auditor's discussion with management about a material inconsistency (or other information that appears to be materially misstated) may include requesting management to provide support for the basis of management's statements in the other information. Based on management's further information or explanations, the auditor may be satisfied that the other information is not materially misstated. For example, management explanations may indicate reasonable and sufficient grounds for valid differences of judgment. Auditor's duties with regard to reporting in the given case are given hereunder: As per SA 720, “The Auditor's Responsibility in Relation to Other Information”, if the auditor concludes that a material misstatement of the other information exists, the auditor shall request management to correct the other information. If management: (i) Agrees to make the correction, the auditor shall determine that the correction has been made; or (ii) Refuses to make the correction, the auditor shall communicate the matter with those charged with governance and request that the correction be made. Contention of the Engagement Partner of the firm that auditors are not concerned with such disclosures made by the management in its annual report, is not correct.

Topics: Standard on Auditing (SA)

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