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CA Final · Advanced Auditing, Assurance and Professional Ethics · Materiality, Risk Assessment and Internal Control

During the audit of Himalaya Pharma Ltd, the auditor notes that an automated control rejects invoices above a preset limit. Management wants a control response for a one-off acquisition that falls outside that automated rule. Under SA 315, which kind of control is generally more suitable for this situation?

A manual control is generally more suitable, because SA 315 notes that manual elements fit situations needing judgment and discretion, such as large, unusual or non-recurring transactions and changing circumstances requiring a response outside an existing automated control. Automated controls suit routine, rule-based processing.

  1. AA manual control, because judgment is needed for large, unusual or non-recurring transactions and changing circumstancesCorrect
  2. BAn automated control, because it applies rules consistently without discretion
  3. CNo control, because one-off transactions are outside internal control
  4. DAn automated control, because errors in such transactions are easy to predict

Explanation

SA 315 says manual elements may be more suitable where judgment and discretion are required, such as large, unusual or non-recurring transactions and changing circumstances needing a response outside an existing automated control. Automated controls suit routine rule-based processing. Errors in unusual transactions are hard to predict, so the last option is wrong.

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