CA Inter P5 · Chapter 3 · Question 2 of 13
The auditor of Prakash Chemicals Ltd. has assessed the risk of material misstatement for inventory valuation as high. The auditor should therefore:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Accept a lower detection risk and obtain more persuasive audit evidence from substantive procedures
Explanation
Detection risk varies inversely with the assessed risk of material misstatement for a given level of audit risk. A high assessed risk requires a lower acceptable detection risk, which means more persuasive evidence through changes in the nature, timing and extent of substantive procedures, for example larger samples or procedures closer to the year-end.
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