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

In auditing Sagar Pharma Ltd, which processes high-volume sales invoices through an ERP, the auditor is considering how automated and manual controls differ. In which circumstance would SA 315 suggest that manual elements of internal control may be more suitable?

Manual controls may be more suitable for large, unusual or non-recurring transactions where judgment and discretion are needed. Routine rule-based processing, complex calculations in volume and security-enforced segregation of duties are strengths of IT, so they favour automated controls.

  1. AApplying predefined pricing rules consistently to thousands of routine invoices
  2. BPerforming complex interest calculations on a large volume of transactions
  3. CEnforcing segregation of duties through application security settings
  4. DHandling a large, unusual, non-recurring transaction that requires judgment and discretionCorrect

Explanation

SA 315 states manual elements may be more suitable where judgment and discretion are required, such as large, unusual or non-recurring transactions. The other options describe benefits of IT: consistent application of business rules, complex calculations and segregation of duties through security controls. So they favour automated controls.

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