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

Mehra & Co. audits Bharat Cables Ltd, a listed company. Tests of controls over sales authorisation in the first half of the year found them effective. In the second half the company replaced its ERP billing module in October. The auditor wishes to rely on controls for the full year. What is the most appropriate response under SA 330?

The auditor should obtain additional evidence on how controls operated in the remaining period, specifically testing the new ERP billing module, before relying on them for the full year. First-half results and management representations alone cannot support reliance after a significant system change.

  1. ARely on first-half results for the whole year, since controls tested effective once remain effective
  2. BDiscard reliance on controls entirely and perform no further tests, even for the first half
  3. CObtain additional audit evidence about the operation of controls during the remaining period, including the changes in the new module, before relying on themCorrect
  4. DRely on the management representation letter to conclude that controls operated all year

Explanation

When controls are tested at an interim date, the auditor must obtain evidence about significant changes after that date and about the remaining period. A new ERP billing module is a significant change, so its design and operation must be tested. Management representations alone cannot replace this evidence, and prior testing does not cover the new system.

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