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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Fraud and error

In the audit of Halden Logistics, the auditor tests journal entries as required by ISA 240 to address management override of controls. Which approach is most consistent with the standard?

Journal testing is mandatory whatever the assessed risks, because management can override controls. The auditor selects entries using risk-based criteria, inquires of those involved, and considers testing throughout the period as well as year-end and post-closing adjustments, not just senior management year-end entries.

  1. ATest journals and other adjustments at the end of the period and throughout the year, selecting using risk-based criteria, and consider the need to test throughout the periodCorrect
  2. BTest only year-end journals posted by senior management, since earlier entries are covered by controls testing
  3. COmit the test if controls over journals were found effective at interim
  4. DTest a random sample of journals, because risk-based selection would introduce bias

Explanation

ISA 240 requires, regardless of assessed risks, testing the appropriateness of journal entries and other adjustments, making inquiries of those involved, and considering the need to test throughout the period. Selection is based on assessed fraud risks, such as unusual accounts, round sums or post-closing entries. The test cannot be omitted because controls appear effective, since management can override controls.

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