Page 86 - CA Inter Audit PARAM

CA Ravi Taori
• Segregation of duties at every point in sales transaction. (accounting for debtors, collecting the
payments, sending reminders etc.)
• Debtors are collected on time.
• In case debtors are not collected in time, sending reminders and taking legal actions if required.
• Balances are regularly reviewed.
• A proper system of follow up exists and if necessary, adequate provision for bad debt should be made
by preparing adequate ageing schedule of the debtors.

QNO— Identify Method Used For Test of Control New Course – (S24E)
330.07.85 Bhaskar CNO – SA330.07

CA B, was the auditor of Star Limited. He wanted to ensure that the company had correctly reconciled its
bank accounts and also wanted to understand whether and how far the internal control system was

operating in the company. What kind of test of control was CA B performing? What are the other procedures
that can be applied while undertaking test of controls?
Answer Inquiries of Management and Others Within the Entity: After assimilating the internal control system, the
auditor needs to examine whether and how far the same is actually in operation. Test of controls are performed
to obtain audit evidence about the effectiveness of the: -

(i) Design of the accounting and internal control system
(ii) Operation of the internal control throughout the period

In the given case, CA B was performing Re-performance. It involves the auditor’s independent
execution of procedures or controls that were originally performed as part of the entity’s internal
control, for example, reconciliation of bank accounts, to ensure they were correctly performed by the
entity.

Other procedures that can be applied while undertaking test of controls are:
• Inspection of documents supporting transactions and other events to gain audit evidence that
internal controls have operated properly, for example, verifying that a transaction has been
authorised.

• Inquiries about, and observation of, internal controls which leave no audit trail, for example,
determining who actually performs each function and not merely who is supposed to perform
it.

• Testing of internal control operating on specific computerised applications or over the overall
information technology function, for example, access or program change controls.

QNO Using Audit Evidence Obtained in Previous Audit Old Course - (M18E/N21R/ N19E/M23M)
330.09 Bhaskar CNO SA330.060
What are the considerations for an auditor regarding the operating effectiveness of controls using audit
evidence obtained in previous audits?
OR

Discuss the various points which auditor needs to consider in determining whether it is appropriate to use
audit evidence about operating effectiveness of controls obtained in previous audit, and if so, the length of
the time period that may elapsed before retesting.
➢ Factors
In determining whether it is appropriate to use audit evidence about the operating effectiveness of
controls obtained in previous audits, and, if so, the length of the time period that may elapse before
retesting a control, the auditor shall consider the following:

CPM @ MCG

➢ The effectiveness of other elements of internal control, including the Control environment, the
entity’s monitoring of controls, and the entity’s risk assessment process;
(Poor attitude of management towards internal control system is encouragement to wrong
doers)

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