Skip to content

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

Deccan Pharma Ltd has an internal audit function that has tested its inventory counts and also evaluated management's going concern assumption and valuation of a complex warranty provision. The external auditor, CA Rohan, wishes to rely heavily on this work to reduce his own procedures. Which approach is consistent with SA 610 (Revised)?

Rohan may use relevant internal audit work such as the inventory count testing, but he must himself make the significant judgments on going concern and the warranty estimate. The external auditor has sole responsibility for the opinion, and greater judgment requires more direct procedures.

  1. ARely on internal audit for the going concern evaluation, because it has more knowledge of the entity
  2. BUse internal audit's work on inventory counts where relevant, but make the significant judgments on going concern and the estimate himselfCorrect
  3. CUse internal audit's work for all areas, since the external auditor may share responsibility for the opinion
  4. DIgnore internal audit's work entirely, because SA 610 prohibits its use in any area involving estimates

Explanation

The external auditor has sole responsibility for the opinion and must make significant judgments, including evaluating going concern and significant accounting estimates. Work on inventory counts may be used if relevant to the strategy and plan. Option C is wrong since responsibility is not shared. Option D is wrong since SA 610 does not prohibit use of internal audit work.

Did you get it right without looking?

One question tells you little. A timed set on Audit Planning, Strategy and Execution shows your real accuracy, how long you take and where you lose marks.

Practise Audit Planning, Strategy and ExecutionFree diagnostic mock

More Audit Planning, Strategy and Execution questions