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CA Intermediate · Auditing and Ethics · Risk Assessment and Internal Control

Auditor Rohan finds that at Deccan Steels Ltd., the same accounts officer raises purchase orders, receives goods and approves supplier payments. Rohan wants to name the control deficiency. Which is the most appropriate description?

The deficiency is lack of segregation of duties. When one officer orders, receives and pays, no independent check exists, so error or misappropriation can go undetected. The auditor should evaluate the deficiency and consider its effect on the nature, timing and extent of further procedures.

  1. ALack of segregation of duties, which increases the risk of misappropriation and errorCorrect
  2. BWeak audit committee composition
  3. CExcessive reliance on IT general controls
  4. DInadequate authorisation limits for share transfers

Explanation

Segregation of duties separates authorisation, custody and recording. One person handling ordering, receipt and payment lets errors or fraud go undetected. The other options describe unrelated matters not evident in the facts.

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