Page 467 - CA Final PARAM Digital Book.

Do you think auditor made correct statement? Also discuss certain subject matters or assertions
where it is difficult to detect material misstatement due to potential effects of inherent limitations.
Answer Certain assertions or subject matters where it is difficult to detect material misstatements due to
potential effects of inherent limitations -
As per SA 200 - “Overall Objectives of the Independent Auditor and the Conduct of an Audit in
Accordance with Standards on Auditing” and as per SQC 1 because of the inherent limitations of an
audit, there is an unavoidable risk that some material misstatements of the financial statements may
not be detected, even though the audit is properly planned and performed in accordance with SAs.

Accordingly, the subsequent discovery of a material misstatement of the financial statements
resulting from fraud or error does not by itself indicate a failure to conduct an audit in accordance
with SAs. However, the inherent limitations of an audit are not a justification for the auditor to be
satisfied with less-than-persuasive audit evidence.

Whether the auditor has performed an audit in accordance with SAs is determined by the audit
procedures performed in the circumstances, the sufficiency and appropriateness of the audit evidence
obtained as a result thereof and the suitability of the auditor’s report based on an evaluation of that
evidence in the light of the overall objectives of the auditor.

In view of above, it can be concluded that auditors did not give correct statement.

In the case of certain assertions or subject matters, the potential effects of the inhernent limitations
on the auditor’s ability to detect material misstatements are particularly significant. Such assertions
or subject matters include: Shortcut :- FaRaNG

(i) Fraud, particularly fraud involving senior management or collusion.
(ii) The existence and completeness of related party relationships and transactions.
(iii) The occurrence of non-compliance with laws and regulations.
(iv) Future events or conditions that may cause an entity to cease to continue as a going
concern.

SA 210

Mandatory matters in engagement letter Old Course - (M19R, M19M,N20R)
QNO TITANIUM CNO - SA210.060
2.010 New Course-
(M19M,N20R,N21M,SM21,N22M,M23R,SM23)
MEA Limited is a listed company having its operation across India. MEA Limited appointed Mr. X, Mr. Y and
Mr. Z, as its joint auditors for the year 2019-20. After making sure that all of them are qualified to be
appointed as statutory auditor, MEA Limited issued engagement letter to all of them. But Mr. X was not
clear on some points, so he requested MEA Limited to slightly change the terms of his engagement.
This change will not impact the ultimate opinion on the financial statement. The engagement letter
contains the details on objective and scope of audit, responsibilities of auditor and identification of
framework applicable. It also contains the reference to expected form and content of report from all three
joint auditors. In your opinion what was the discrepancy in the Audit engagement letter issued by MEA
Limited?

OR
AKJ Ltd. is a small-sized 30 years old company having business of manufacturing of pipes. Company has a
plant based out of Dehradun and have their corporate office in Delhi. Recently the company appointed new
firm of Chartered Accountants as their statutory auditors.

The statutory auditors want to enter into an engagement letter with the company in respect of their
services, but the management has contended that since the statutory audit is mandated by law,
engagement letter may not be required. Auditors did not agree to this and have shared a format of
engagement letter with the management for their reference before getting that signed. In this respect

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