CA Inter P5 · Chapter 2 · Question 11 of 11
At planning, the auditor of Dhruv Motors Ltd. set materiality at 1% of forecast revenue of Rs. 200 crore. Actual revenue for the year turns out to be Rs. 150 crore. Under SA 320, the auditor should:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Revise materiality to Rs. 1.5 crore and determine whether performance materiality and the nature, timing and extent of further audit procedures remain appropriate
Explanation
Original materiality = 1% x Rs. 200 crore = Rs. 2 crore. Based on actual revenue, 1% x Rs. 150 crore = Rs. 1.5 crore. SA 320 requires the auditor to revise materiality when aware of information that would have caused a different amount initially. When the revised amount is lower, the auditor must reconsider performance materiality and whether the nature, timing and extent of further audit procedures remain appropriate.
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