Skip to content

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

During planning of the audit of Narmada Retail Ltd, the engagement team learns that the company recently implemented a new ERP system and that several senior accounting staff resigned during the year. Under SA 315 (Revised), how should the auditor treat these matters?

The ERP implementation and staff resignations are changes in the entity's environment and information system. Under SA 315 (Revised) they may indicate risks of material misstatement, so the auditor considers them when identifying and assessing risks at the financial statement and assertion levels during planning.

  1. AAs matters relevant only to the audit of internal controls, with no effect on risk assessment of the financial statements
  2. BAs conditions that may indicate risks of material misstatement, to be considered in identifying and assessing risks at the financial statement and assertion levelsCorrect
  3. CAs reasons to issue a disclaimer of opinion before commencing the audit
  4. DAs matters to be addressed only after the audit fieldwork is complete

Explanation

SA 315 requires the auditor to understand the entity and its environment, including changes such as new systems and staff turnover, which can affect the control environment and information system. These factors may indicate risks of material misstatement, so they feed into risk assessment at both levels. A disclaimer before work begins would be premature.

Did you get it right without looking?

One question tells you little. A timed set on Risk Assessment and Internal Control shows your real accuracy, how long you take and where you lose marks.

Practise Risk Assessment and Internal ControlFree diagnostic mock

More Risk Assessment and Internal Control questions