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CA Final · Advanced Auditing, Assurance and Professional Ethics · Materiality, Risk Assessment and Internal Control

Anand Bros audits Lotus Foods Ltd. During the year, management changed the pricing structure mid-cycle for a new product line, and the existing automated billing control could not handle it. Management proposes to rely on a manual review to deal with the change. Which statement is consistent with SA 315?

Manual elements may be more suitable in changing circumstances that need a control response outside the scope of an existing automated control. SA 315 links manual controls with judgment, unusual transactions, hard-to-predict errors and monitoring automated controls, so management's manual review is appropriate here.

  1. AManual elements may be more suitable in changing circumstances that require a control response outside the scope of an existing automated controlCorrect
  2. BManual elements are suitable only for routine, high-volume processing
  3. CManual controls cannot be used to monitor automated controls
  4. DManual controls are suitable only where errors are easy to predict

Explanation

SA 315 states that manual elements may be more suitable where judgment is required, including changing circumstances needing a response outside an existing automated control. It also lists monitoring automated controls, large or unusual transactions, and errors that are hard to predict. The other options reverse these points.

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