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CA Final · Advanced Auditing, Assurance and Professional Ethics · Digital Auditing & Assurance

Sundaram & Co., a CA firm, is auditing Kaveri Retail Ltd, which processes sales through an ERP. The auditor wants to test whether the system correctly rejects invoices where the customer's credit limit is exceeded. Which approach best provides evidence about this automated application control?

The auditor should re-perform the control by entering test transactions exceeding the credit limit and observing whether the ERP blocks them. This directly tests the automated control's operation, whereas inquiry, bank agreement or analytical comparison does not give evidence that the system enforces the limit.

  1. AInspect a sample of paid invoices at year end and agree amounts to bank statements
  2. BRe-perform the control by entering test transactions that exceed the credit limit and observe whether the system blocks themCorrect
  3. CAsk the sales manager whether credit limits are generally respected
  4. DCompare the current year revenue with the previous year revenue to identify unusual fluctuations

Explanation

Automated application controls are best tested by inspecting configuration or re-performing with test data, showing the system rejects limit breaches. Agreeing paid invoices to bank does not test the block. Inquiry alone is not sufficient evidence, and analytical comparison is a substantive procedure that does not test the control.

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