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CS Professional · Internal and Forensic Audit · Internal Audit Engagements and Planning

Midway through the year, Kaveri Pharma Ltd launches a new ERP module for inventory and its Mumbai plant reports unexpected stock variances. The internal audit head had not scheduled inventory audit this year. What is the most appropriate action in risk-based planning?

The internal audit head should revise the plan to include the inventory review and, if resources are limited, defer a lower-risk area. Risk assessment is dynamic, so changed conditions and unexpected events justify modifying the plan, while ignoring it or cancelling all other audits would be inappropriate.

  1. AIgnore the matter until the next annual planning cycle
  2. BRevise the audit plan to include inventory review, deferring a lower-risk area if resources are limitedCorrect
  3. CAsk the plant manager to decide whether an audit is needed
  4. DCancel all other audits to concentrate only on inventory

Explanation

Risk assessments are dynamic; unexpected events and changed conditions justify modifying the plan. The plan should be updated to cover the new high risk, rebalancing resources by deferring a lower-risk area. Cancelling everything else is disproportionate.

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