Page 107 - CA Final PARAM Digital Book.

Part 5-SA 320

QNO Benchmark Old Course – (N13E, N17R, PM17, N18M, N20E,N22E)
42.000 TITANIUM CNO—SA320.020

CA. B was appointed as the auditor of SRT Limited for the financial year 2021-22. During the course of
planning for the audit, CA. B intends to apply the concept of materiality for the financial statements as a
whole. Please guide him with respect to the factors that may affect the identification of an appropriate
benchmark for this purpose.

What benchmark should be adopted by CA. B, if SRT Limited is engaged in:
(i) the manufacture and sale of air conditioners and is having regular profits.
(ii) the construction of large infrastructure projects and incurred losses in the previous two financial years,
due to pandemic
OR

Mr X was appointed as the auditor of M/s Easygo Ltd and intends to apply the concept of materiality for
the financial statements as a whole Please guide him as to the factors that may affect the identification
of an appropriate benchmark for this purpose.
OR

You are being appointed as the auditor of X Ltd. for the first time You want to determine them materiality
level and for that have applied percentage to choose benchmark as a starting point in determining
materiality for the financial statements as a whole. What are the factors that may affect the identification
of materiality while auditing?

Answer Part I -- Relevant Standards & Laws
▪ SA 320, Materiality in Planning and Performing an Audit
Part II -- Requirements of Relevant Standards & Laws

➢ Use of Benchmarks in Determining Materiality for the Financial Statements as a Whole:
As per SA 320 prescribes the use of Benchmarks in Determining Materiality for the Financial
Statements as a Whole. Determining materiality involves the exercise of professional judgment. A
percentage is often applied to a chosen benchmark as a starting point in determining materiality for
the financial statements as a whole.

➢ Factors Affecting Identification of Benchmark (Apple LOVE)
Factors that may affect the identification of an appropriate benchmark include the following:

A- Attention of the users/ L- Life Cycle & Industry & Economic Environment / O- Ownership
Structure & Financing / V- Volatility / E- Elements of Financial Statements

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