Page 116 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori
opposite.
• TOD- Material misstatement unless there is further audit evidence to prove opposite.
• Sampling alone do not provide reasonable basis. Unacceptable sampling risk that actuals are more than
tolerable limits.
• Request management to investigate misstatements & potential for further misstatement. Modify NTE of
further audit procedure (TOC / TOD)
III. Projected Level Above Tolerable Level
• TOC- Controls are not reliable and high RMM.
• TOD - Material Misstatement (MMST) Exists
• Reasonable Basis for conclusions
Special Case: If there is anomalous misstatement, consider it long with projected misstatement and then
compare with tolerable misstatement. if its close or more than tolerable then sampling is not providing
reasonable basis for conclusions.
Levels = Rate of Deviation / Misstatement

SA 550

RELATED PARTIES

(CNO-SA550.020) Nature of Related Party Relationships and Transactions
RPT in normal course doesn't lead to higher RMM
Normal Course of Business: Related party transactions (RPT) in the normal course of business don't lead to a
higher risk of material misstatement compared to transactions with unrelated parties.
Situation when RPT will lead to higher RMM
(Shortcut: INC)
Ineffective Systems: Ineffective information systems in identifying, authorizing, recording, summarizing, and
disclosing related party transactions may lead to noncompliance with accounting standards (AS 18), resulting
in a higher risk of material misstatement. (e.g., Lack of appropriate employees, register, or software to manage
related party transactions)
Not Normal Market Terms: Related party transactions may not be conducted under normal market terms,
leading to higher risks of material misstatement. (e.g., Goods purchased at double the market price from a
related party)
Complexity: Related parties may operate through complex relationships and structures, increasing the
complexity of related party transactions and the risk of material misstatement. (e.g., Indian Company's
complex international subsidiary and trust relationships)

(CNO-SA550.040) Understanding the Entity's Related Party Relationships & Transactions
Auditor & engagement team shall gather information from management.
• Related Parties identity & any changes in prior period (if any)
• Nature of relationships with these related parties
• Type & purpose of transactions entered with these related parties.
SA 315 & SA 240 requires engagement team to have regular discussion.
Further SA 550 says that such discussions should include RP relationships & transactions that will be helpful
to identify MMST due such relationships or transactions.

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