Skip to content

CA Final · Advanced Auditing, Assurance and Professional Ethics · Audit Planning, Strategy and Execution

Sagar Foods Ltd has an internal audit function whose work on inventory counts is relevant to the statutory auditor's plan. The statutory auditor is evaluating significant accounting estimates, including a complex provision for product returns that needs high judgment. As per SA 610 (Revised), what is the appropriate approach?

The auditor should perform more procedures directly on the provision. Evaluating significant accounting estimates is a significant judgment reserved to the external auditor, and where high judgment is needed, internal audit work alone cannot supply sufficient appropriate audit evidence under SA 610 (Revised).

  1. ARely mainly on the internal audit function's work on the provision, as it knows the business better
  2. BPerform more procedures directly on the provision, because the greater the judgment involved, the less the internal audit work alone can provide sufficient appropriate evidenceCorrect
  3. CDelegate the evaluation of the provision entirely to the internal auditors and refer to their work in the report
  4. DUse internal audit work for the provision only if the internal audit head is a chartered accountant

Explanation

SA 610 (Revised) says that the greater the judgment needed in planning and performing procedures and evaluating evidence, the more procedures the external auditor must perform directly, as using internal audit work alone will not give sufficient appropriate evidence. Evaluating significant accounting estimates is a significant judgment for the external auditor alone.

Did you get it right without looking?

One question tells you little. A timed set on Audit Planning, Strategy and Execution shows your real accuracy, how long you take and where you lose marks.

Practise Audit Planning, Strategy and ExecutionFree diagnostic mock

More Audit Planning, Strategy and Execution questions