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

Sagar Pharma Ltd processes lakhs of sales invoices a month through an ERP with predefined pricing rules. For an unusual, one-off sale of a plant to a related party, the auditor notes that management relies on the CFO's personal review. Under SA 315, which observation is most appropriate?

Under SA 315, manual control elements may be more suitable for large, unusual or non-recurring transactions requiring judgment. The CFO's personal review of the one-off related-party plant sale is therefore a relevant control the auditor should understand, rather than disregard because the ERP is automated.

  1. AManual elements may be more suitable for large, unusual or non-recurring transactions that need judgment, so the CFO review is a relevant control to understandCorrect
  2. BManual controls are always less reliable, so the auditor should disregard the CFO review
  3. COnly automated controls are relevant to risk assessment in an ERP environment
  4. DThe CFO review is irrelevant because the plant sale is outside the information system

Explanation

SA 315 notes that manual elements may be more suitable where judgment and discretion are needed, such as large, unusual or non-recurring transactions. The CFO's review is therefore a relevant control. Disregarding manual controls as always weaker is wrong because the standard recognises where they fit better.

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