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CA Intermediate · Auditing and Ethics · Audit Strategy, Audit Planning and Audit Programme

During the audit of Himalaya Steels Ltd., the auditor had planned to rely on the company's controls over purchases and had set limited substantive testing. In October, test of controls showed that the controls were not operating effectively as the auditor had expected. The auditor has not yet finalised work. What is the most appropriate response under SA 300 and SA 330?

The auditor should revise the overall audit strategy, audit plan and planned further procedures to reflect the higher risk. Since controls were not operating effectively, control risk is higher than assumed, so substantive testing must be increased rather than reduced or left unchanged.

  1. AContinue with the original plan since it was approved at the start and changes are not permitted
  2. BRevise the overall audit strategy and audit plan, and the planned nature, timing and extent of further procedures, to reflect the changed assessment of riskCorrect
  3. CReduce the extent of substantive testing, since control deficiencies lower detection risk
  4. DIssue a qualified opinion immediately without performing further procedures

Explanation

The auditor must update the strategy and plan as necessary during the audit. Evidence that controls fail means control risk is higher than assumed, so the auditor should revise the assessment and increase substantive procedures. Reducing substantive testing is the opposite of the right response, and an immediate opinion is premature.

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