Skip to content

CA Intermediate · Auditing and Ethics · Risk Assessment and Internal Control

Sundaram & Co., chartered accountants, are auditing Kaveri Textiles Ltd. During risk assessment, the audit team plans to rely only on enquiries of management about whether controls over cash receipts operate effectively. Under SA 315 (Revised), what is the correct audit response?

Enquiry of management alone is not enough. SA 315 (Revised) requires risk assessment procedures to combine enquiries with analytical procedures and observation or inspection, so the auditor gets sufficient understanding of the entity and its controls rather than relying on management's statements.

  1. AEnquiry alone is sufficient, as management is responsible for internal control
  2. BEnquiry alone is not sufficient; it must be combined with other risk assessment procedures such as observation or inspectionCorrect
  3. CRisk assessment procedures need not be performed if the entity is small
  4. DEnquiry should be replaced by substantive tests of details only

Explanation

SA 315 (Revised) requires risk assessment procedures to include enquiries combined with analytical procedures and observation or inspection. Enquiry alone cannot give sufficient understanding of the entity and its controls. Option 0 is wrong because management's responsibility does not make its representation sufficient evidence.

Did you get it right without looking?

One question tells you little. A timed set on Risk Assessment and Internal Control shows your real accuracy, how long you take and where you lose marks.

Practise Risk Assessment and Internal ControlFree diagnostic mock

More Risk Assessment and Internal Control questions