Skip to content

CS Professional · Compliance Management, Audit and Due Diligence · Concepts of Various Audits

Meera & Associates are internal auditors of Ganga Foods Ltd. In the first quarter they reviewed the stores function. In the audit committee meeting the CEO asks the firm to also design and implement the new inventory control system and then audit it next quarter. What is the most appropriate response of the firm?

The firm should decline, because designing and implementing the inventory system and then auditing it creates a self-review threat that impairs objectivity. Charging separate fees or obtaining the statutory auditor's consent does not cure this. The firm may advise on improvements but should not take management responsibility for implementation.

  1. AAccept, since designing controls improves the audit's quality
  2. BAccept, provided fees are separately charged
  3. CAccept only if the statutory auditor consents
  4. DDecline implementing and then auditing the same system, as this creates a self-review threat to objectivityCorrect

Explanation

Designing and implementing a system and then auditing it makes the auditor review its own work, a self-review threat that impairs objectivity. Separate fees or the statutory auditor's consent do not remove the threat. The firm may recommend improvements but should not assume management responsibility for implementation.

Did you get it right without looking?

One question tells you little. A timed set on Concepts of Various Audits shows your real accuracy, how long you take and where you lose marks.

Practise Concepts of Various AuditsFree diagnostic mock

More Concepts of Various Audits questions