Skip to content

CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Advanced Auditing, Assurance and Professional Ethics

Case: Lotus Finserve Ltd, an NBFC, uses a cloud-based loan management system maintained by a third-party service organisation. The auditor, CA Seema, wants to rely on controls over interest computation operated by that service organisation. She obtains a Type 2 report under SA 402 from the service auditor, covering the period April to December, while the financial year ends 31 March. Which action is most appropriate?

CA Seema should rely on the Type 2 report only for April to December and obtain additional evidence, such as a bridging letter or her own tests, for January to March. The report does not cover the whole year, so full reliance would leave an evidence gap.

  1. ARely on the report fully for the entire year since a Type 2 report covers operating effectiveness
  2. BIgnore the report because controls at a service organisation can never be relied upon
  3. CUse the report for the covered period and obtain additional evidence, such as a bridging letter or tests, for the January to March periodCorrect
  4. DConvert the report into a Type 1 report and rely on it as of 31 March

Explanation

A Type 2 report covers design and operating effectiveness over a specified period. Since it ends in December, the auditor needs additional evidence for the remaining period, for example inquiries on changes in controls or own tests. Full reliance leaves a gap. Controls at service organisations can be relied on when sufficient evidence exists.

Did you get it right without looking?

One question tells you little. A timed set on Advanced Auditing, Assurance and Professional Ethics shows your real accuracy, how long you take and where you lose marks.

Practise Advanced Auditing, Assurance and Professional EthicsFree diagnostic mock

More Advanced Auditing, Assurance and Professional Ethics questions