Page 111 - CA Final PARAM Digital Book.

Part 6 -SA 330

QNO Test of Control Interim Period -- Identifying & Disclosing Related Party Old Course – (N21R)
47.500 TITANIUM CNO—Unique
While formulating the audit plan and responding to the risks of material misstatement identified and
assessed in related party transaction and relationships, Ms. K the engagement manager of the audit team
of ABC Limited, decided to rely upon the internal controls placed for identification and disclosure of
related party relationships and transactions in accordance with the applicable financial reporting
framework.
You are requested to guide Ms. K regarding the necessity to test the controls to obtain sufficient and
appropriate audit evidence. Also guide, whether Ms. K can use the audit evidence obtained,
regarding operative effectiveness of control on identification and disclosure of related party
relationships and transactions, in the interim period.
Answer ➢ SA 550 FAP
As per SA 550, “Related Parties”, according to para on “Responses to the risks of material
misstatement associated with related party relationships and transactions”, the auditor
should design and performs further audit procedures to obtain sufficient appropriate audit
evidence about the assessed risks of material misstatement associated with related party
relationships and transactions.

➢ SA 330--which Controls/NTE
Further, as per SA 330, “The Auditor’s Responses to Assessed Risks”, the auditor shall design
and perform tests of controls to obtain sufficient appropriate audit evidence as to the
operating effectiveness of relevant controls when:

(a) the auditor’s assessment of risks of material misstatement at the assertion level includes an
expectation that the controls are operating effectively (i.e., the auditor intends to rely on the
operating effectiveness of controls in determining the nature, timing and extent of substantive
procedures); or
(b) Substantive procedures alone cannot provide sufficient appropriate audit evidence at the
assertion level.

In designing and performing tests of controls, the auditor shall obtain more persuasive audit
evidence the greater the reliance the auditor places on the effectiveness of a control.
Moreover, the auditor shall test controls for the particular time, or throughout the period, for
which the auditor intends to rely on those controls.
➢ Interim Period
When the auditor obtains audit evidence about the operating effectiveness of controls during
an interim period, the auditor shall:
(a) Obtain audit evidence about significant changes to those controls subsequent to the
interim period; and
(b) Determine the additional audit evidence to be obtained for the remaining period.

In the current case, Ms. K shall design and perform tests of controls to obtain sufficient appropriate
audit evidence as to the operating effectiveness of relevant controls as she intends to rely on the
operating effectiveness of controls in determining the nature, timing and extent of substantive
procedures.
Further, she is also required to obtain the audit evidence about significant changes to those controls
subsequent to the interim period along with the additional audit evidence to be obtained for the
remaining period in accordance with the requirements of Standards on Auditing as discussed above.

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