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

In the audit of Narmada Steels Ltd, CA Prakash plans to test the operating effectiveness of a control and wishes to rely on it. He finds that the control operated effectively in the prior audit and has not changed since. Which statement is correct under SA 330?

The auditor may rely on prior-year evidence of an unchanged control only after confirming no change, and must test it at least once in every third audit. Controls addressing significant risks must be tested in the current period, so indefinite reliance is not permitted.

  1. AHe may use prior-year audit evidence only after establishing that the control has not changed, and must test the control at least once in every third audit, subject to the significant-risk restrictionCorrect
  2. BHe can rely on the prior-year evidence indefinitely without any retesting
  3. CHe must retest every control every year regardless of circumstances
  4. DHe may rely on prior-year evidence for controls over significant risks without retesting

Explanation

SA 330 allows reliance on earlier evidence for unchanged controls that are not related to significant risks, but requires testing at least once in every third audit and some testing each year. Indefinite reliance is wrong, and controls mitigating significant risks must be tested in the current period.

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