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

In the audit of Alpine Foods Ltd, the auditor decides to test the operating effectiveness of controls over sales because substantive procedures alone cannot provide sufficient appropriate evidence, as the sales are processed through a highly automated system with minimal manual documentation. Which SA 330 principle supports this response?

SA 330 requires the auditor to design and perform tests of controls when substantive procedures alone cannot provide sufficient appropriate audit evidence at the assertion level, such as in highly automated processing with minimal documentation. Tests of controls do not remove the need for substantive procedures on material items.

  1. ATests of controls are never required if the entity uses a computer system
  2. BThe auditor must design and perform tests of controls when substantive procedures alone cannot provide sufficient appropriate audit evidence at the assertion levelCorrect
  3. CTests of controls replace the need for any substantive procedure on material balances
  4. DTests of controls are performed only to detect fraud by the management

Explanation

SA 330 requires tests of controls when substantive procedures alone cannot provide sufficient appropriate audit evidence at the assertion level, as in highly automated environments with little documentation. Even then, substantive procedures are still required for each material class of transactions, balance and disclosure. They are not designed solely for management fraud.

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