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CS Professional · Internal and Forensic Audit · Internal Audit: Introduction and Overview

Meridian Pharma Ltd. has an internal audit team that reviews sales transactions through system-generated exception reports every week, testing items such as credit notes above a set value, and issues interim findings to management within days. Which statement most accurately describes this arrangement?

The arrangement is a continuous audit. Transactions are tested on an ongoing basis soon after they occur, using exception reports and prompt interim reporting, so control failures and irregularities are detected earlier than in a periodic year-end audit. It does not replace the statutory audit.

  1. AIt is a continuous audit, which tests transactions close to when they occur and reduces the delay in detecting control failuresCorrect
  2. BIt is a final audit, because all testing is done after the year-end accounts are closed
  3. CIt is a management audit of the board's strategic decisions
  4. DIt is a statutory audit, because exception reports replace the auditor's opinion

Explanation

Frequent testing of transactions soon after they occur, with prompt interim reporting, characterises continuous auditing. Year-end testing would be a final or periodic audit, and exception reports neither involve review of board strategy nor replace a statutory auditor's opinion.

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