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CS Professional · Compliance Management, Audit and Due Diligence · Concepts of Various Audits

Ananya Pharma Ltd's auditor, near year-end, reviews every transaction of a very small petty cash imprest in full, but for a large sales ledger of 40,000 invoices examines a representative selection and extrapolates conclusions. Which statement best describes the auditor's approach?

The approach is acceptable: auditors decide between full checking and test checking by considering volume, risk, materiality and internal control. Small areas can be checked completely, while a large population like 40,000 invoices is ordinarily tested through sampling.

  1. AComplete checking for a small, high-risk area and test checking for a large population is acceptable depending on volume, risk and internal controlCorrect
  2. BTest checking is never allowed in a statutory audit
  3. CComplete checking is mandatory for all areas
  4. DSampling applies only to internal audit

Explanation

Auditors choose between complete and test checking based on volume, materiality, risk and strength of internal control. Large populations are normally tested on a sample basis, while small high-risk areas may be fully checked. Hence the first option is right; the others state absolute rules that do not exist.

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