Page 66 - CA Inter Audit PARAM

CA Ravi Taori
Author’s Note
Answer is also covered in ICS.03

QNO— operations. New Course – (SM25)
ICS.05.20 Bhaskar CNO - SA315.P2.100
CA Smriti is auditor of a company. As part of audit, she is going through company policies and practices
regarding employee recruitment, training, orientation and related matters. She seems to be very much
interested in finding out whether company hires best candidates from applicant pool. Identify what she
is trying to do? How gaining knowledge about this aspect is useful to her as an auditor?
Answer The study of company policies and practices regarding employee recruitment, training, orientation and
related matters including hiring of best candidates is part of understanding HR function of the company.
It, in turn, helps in understanding control environment of the company. By gaining such a knowledge, she
can better understand internal control of the company.

QNO Understanding Entity's Risk Assessment Process Old Course -- (N22M)
ICS.05.50 Bhaskar CNO- SA315-P2.120 New Course -- (S24M)
Explain what understanding should an auditor obtain regarding an entity’s risk assessment process (one
of the components of the internal control of the entity).
OR

While conducting the audit of Zeena Limited, CA E is trying to obtain understanding of different
components of internal controls of the company. Such an understanding is necessary and is required to
be documented in accordance with Standards on Auditing. In this context, how he shall obtain
understanding of the risk assessment process of the company and how is this understanding important
for the auditor?
Answer The Entity’s Risk Assessment Process– Component of Control Environment
The auditor shall obtain an understanding of whether the entity has a process for:
(a) Identifying business risks relevant to financial reporting objectives;
(b) Estimating the significance of the risks;
(c) Assessing the likelihood of their occurrence; and
(d) Deciding about actions to address those risks.

The entity’s risk assessment process forms the basis for the risks to be managed. If that process is
appropriate, it would assist the auditor in identifying risks of material misstatement. Whether the entity’s
risk assessment process is appropriate to the circumstances is a matter of judgment .

QNO Internal Control Component - Control Activities Old Course -- (M21R)
ICS.06 Bhaskar CNO- SA315-P2.140
The auditor shall obtain an understanding of control activities relevant to the audit, which the auditor
considers necessary to assess the risks of material misstatement. Explain in detail stating clearly the meaning
of control activities and also discuss control activities that are relevant to the audit.
Answer The auditor shall obtain an understanding of control activities relevant to the audit, which the auditor
considers necessary to assess the risks of material misstatement. An audit requires an understanding
of only those control activities related to significant class of transactions, account balance, and
disclosure in the financial statements and the assertions which the auditor finds relevant in his risk
assessment process.

Control activities are the policies and procedures that help ensure that management directives are
carried out.

Control activities, whether within IT or manual systems, have various objectives and
are applied at various organisational and functional levels.

Control activities that are relevant to the audit are:

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