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CA Final · Advanced Auditing, Assurance and Professional Ethics · Audit Planning, Strategy and Execution

CA Anita audits Sagar Logistics Ltd and wants to use internal audit work heavily. The areas are: (P) physical verification of fixed assets, (Q) assessment of impairment of a cash-generating unit involving significant forecasts, (R) testing of routine payroll calculations. Considering SA 610 (Revised), for which area will she need to perform the most procedures directly, because internal audit work alone cannot give sufficient appropriate evidence?

Area Q, the impairment assessment based on significant forecasts, needs the most direct procedures. SA 610 (Revised) says the greater the judgment needed, the more the external auditor must perform directly, because internal audit work alone will not provide sufficient appropriate evidence for significant judgments such as estimates.

  1. AP, because fixed assets are material
  2. BQ, because greater judgment is needed in planning and performing procedures and evaluating evidenceCorrect
  3. CR, because payroll involves personnel data
  4. DAll three equally, since internal audit work can never be used

Explanation

SA 610 states that the greater the judgment needed in planning and performing procedures and evaluating evidence, the more procedures the external auditor must perform directly. Evaluating significant estimates is a significant judgment. Option 3 is wrong because the standard permits use of internal audit work in suitable areas.

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