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CS Professional · Compliance Management, Audit and Due Diligence · Audit Process and Documentation

During planning for Deccan Auto Components Ltd, the auditor inquires of the internal audit function, and responses suggest findings that may be relevant to financial reporting and the audit. In designing substantive procedures, the auditor also considers journal entries and other adjustments in the financial statement closing process. Which statement is correct under SA 315 and SA 330?

The auditor may consider reading related internal audit reports, including strategy, planning documents and findings reports, when inquiries suggest relevance. The nature and extent of examining journal entries and adjustments depends on the complexity of the financial reporting process and the related risks of material misstatement.

  1. AThe auditor may consider reading related internal audit reports, such as its strategy and planning documents and reports of findings; and the nature and extent of journal entry examination depends on the complexity of the financial reporting process and related risks of material misstatementCorrect
  2. BThe auditor must read every internal audit report, and the extent of journal entry testing is fixed irrespective of risk
  3. CThe auditor may not read internal audit reports, and journal entry testing depends only on entity size
  4. DJournal entry examination is needed only if the internal audit function reports no findings

Explanation

SA 315 A9 says that where inquiries indicate relevant findings, the auditor may consider it appropriate to read related internal audit reports, including its strategy and planning documents and findings reports. SA 330 A52 says the nature and extent of examination of journal entries depends on the nature and complexity of the financial reporting process and related risks. The other options impose fixed or incorrect rules.

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