CA Inter P5 · Chapter 7 · Question 11 of 12
Materiality for Kavya Sweets Ltd. is Rs. 50 lakh. Uncorrected misstatements, all overstating profit, are: factual Rs. 18 lakh, judgmental Rs. 14 lakh and projected Rs. 12 lakh. Which conclusion is most appropriate under SA 450?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Aggregate uncorrected misstatements are Rs. 44 lakh; they are below materiality, but the auditor should consider whether the risk of undetected misstatements could take the total above materiality
Explanation
Aggregate = 18 + 14 + 12 = Rs. 44 lakh, which is below materiality of Rs. 50 lakh. SA 450 requires factual, judgmental and projected misstatements to be considered together. Since the total is close to materiality, the auditor should consider the risk that undetected misstatements, together with these, exceed materiality, and may need to perform more procedures or request management to correct them.
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