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QNO Relying on previous year test of controls. Old Course – (M13E, N16R, PM17, N19M, M22R)
49.000 TITANIUM CNO—SA330.060
In the course of audit of Z Ltd, its auditor wants to rely on audit evidence obtained in previous audit in
respect of effectiveness of internal controls instead of retesting the same during the current audit. As an
advisor to the auditor kindly caution him about the factors that may warrant a re-test of controls.
Answer Part I -- Relevant Standards & Laws
▪ SA 330, ‘The Auditor’s Responses to Assessed Risks
Part II -- Requirements of Relevant Standards & Laws
➢ Retesting Controls: - Its matter of professional judgement to decide whether to
retest controls and what should be length of time between retesting / Even if
there are no changes auditor should test controls once in every third audit. Shall
test some controls each audit to avoid possibility of testing all controls in one
audit.
As per SA 330 changes may affect the relevance of the audit evidence obtained in previous audits
such that there may no longer be a basis for continued reliance. The auditor’s decision on whether
to rely on audit evidence obtained in previous audits for control is a matter of professional
judgment. In addition, the length of time between retesting such controls is also a matter of
professional judgment.
If there have not been such changes, the auditor shall test the controls at least once in every third
audit and shall test some controls each audit to avoid the possibility of testing all the controls on
which the auditor intends to rely in a single audit period with no testing of controls in the
subsequent two audit periods.
➢ Factors affecting retesting on controls: -
Factors that may warrant a re-test of controls are-
Retesting should be done if there are three Deficiencies in PM’s Computer Deficient Control
Environment / Deficient General IT Controls / Deficient Monitoring on Controls / Personnel
Changes / Manual Controls are Significant / Changing Circumstances.
• D- Deficient Monitoring of controls. (Purchases not covered in scope of Internal Audit)
• D- A Deficient Control environment. (Poor attitude of management towards internal
control system is encouragement to wrong doers)
• D- Deficient General IT-controls. (Purchase entries are ID restricted, but people use each
other’s computer, and they know username passwords)
• P- Personnel changes that significantly affect the application of the control. (Purchase &
Store Manager Retired at the beginning of the year, they were replaced my new comers)
• M- A significant Manual element to the relevant controls. (Quotation Selection & Issuing
PO is subjective matter and depends on approving authority, behaviour can change over
period of time)
• C- Changing circumstances that indicate the need for changes in the control. (GST)
QNO Substantive Procedures Mandatory Old Course – (N23M)
50.250 TITANIUM CNO-- SA330.100
While conducting a statutory audit of “Hope Solutions Limited”, CA Y has assessed the risk of material
misstatement to be low at the financial statement level and at the assertion level due to a stable,
established and relatively less risky business and extremely satisfactory internal controls operating in the
company. However, despite the low assessed risk of material misstatement, he chooses to send external
confirmation requests to third parties for confirmation of certain material contracts entered into with
them by the company. By doing so, he intends to obtain evidence regarding certain assertions contained
in the financial statements of the company. Do you think his approach is in accordance with Standards on
Auditing? Justify your answer with reasons
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