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CA Intermediate · Auditing and Ethics · Audit Strategy, Audit Planning and Audit Programme

Neha & Associates is appointed as the statutory auditor of Sagar Foods Ltd., a continuing client. The prior year's audit file shows that a few controls were tested and found effective. For the current year, the auditor wants to rely on that earlier evidence to plan the audit. Which approach is most appropriate under SA 300 and the related Standards?

The auditor should use prior year experience but first perform procedures to establish whether changes since the previous audit affect its relevance. Relying on prior control evidence without checking for changes is wrong, and ignoring the prior file altogether is also inappropriate for planning a recurring audit.

  1. ARely fully on prior year's control evidence without any further inquiry, because the client is continuing
  2. BPerform procedures to establish whether changes have occurred since the prior audit that may affect the relevance of that information, and consider it in planningCorrect
  3. CIgnore prior year's audit file entirely because each year's audit is independent
  4. DObtain a fresh engagement letter instead of considering prior experience

Explanation

For recurring audits, the auditor considers prior experience with the entity but must determine whether changes since the prior audit affect the relevance of that information. Blind reliance ignores changes in controls or the business. Ignoring the file entirely wastes useful knowledge, and a fresh engagement letter does not address the planning question.

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