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CA Final · Advanced Auditing, Assurance and Professional Ethics · Materiality, Risk Assessment and Internal Control

Orchid Pharma Ltd enters a large, one-time settlement with a patent licensor, a non-recurring transaction for which no automated control exists in its ERP. CA Tanvi is considering which type of control the company should rely on. Under SA 315, which is the most appropriate conclusion?

Manual controls may be more suitable for large, unusual or non-recurring transactions because these need judgment and discretion. SA 315 lists such transactions among the circumstances favouring manual elements, so insisting on automated controls or ignoring the transaction would be incorrect.

  1. AManual controls may be more suitable because large, unusual or non-recurring transactions require judgment and discretionCorrect
  2. BAutomated controls are always more suitable, so the auditor should insist on ERP configuration
  3. CNo control is possible, so the auditor should treat the transaction as outside the audit scope
  4. DOnly the monitoring of automated controls justifies manual controls, not unusual transactions

Explanation

SA 315 states that manual elements may be more suitable where judgment and discretion are required, including large, unusual or non-recurring transactions. Insisting on automated controls ignores this. Monitoring automated controls is only one of the listed circumstances, not the sole one.

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