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CMA Intermediate · Corporate Accounting and Auditing · Audit Risk, Internal Control, Internal Check and Internal Audit

In an internal control questionnaire for Sagar Pharma Ltd, the questions are framed so that a 'No' answer signals a weakness. A questionnaire shows 40 questions in the sales area, of which 8 are answered 'No'. Which action by the auditor is most appropriate?

The auditor should assess how significant each 'No' answer is, consider compensating controls, and then adjust the nature, timing and extent of audit procedures. A count of weaknesses does not by itself make the system ineffective, and weaknesses cannot be ignored merely because balances reconcile.

  1. ATreat the sales system as ineffective without further work because 8 weaknesses were found
  2. BIgnore the 'No' answers if the sales figures reconcile with the ledger
  3. CAssess the significance of each 'No' answer, look for compensating controls, and adjust the nature, timing and extent of audit proceduresCorrect
  4. DDelete the 'No' questions from the questionnaire to keep the file clean

Explanation

A 'No' answer indicates a possible weakness, not an automatic conclusion. The auditor judges how significant each weakness is, considers compensating controls, and adjusts further audit procedures accordingly. Treating all as fatal or ignoring them because balances reconcile are both unsupported.

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