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

Sundaram & Co., chartered accountants, are auditing Veda Textiles Ltd. The company uses an ERP system. The audit team wants to test whether a control that blocks posting of purchase invoices above a set limit without manager approval operates in the system. Which approach is most directly aimed at obtaining evidence about the operation of this automated control?

The most direct approach is re-performing the control by entering a test invoice above the limit and observing whether the system blocks it. Inquiry alone does not give sufficient evidence of operating effectiveness, while manuals and trial balance reviews do not test the automated control itself.

  1. ARe-performing the control by attempting to enter a test invoice above the limit and observing whether the system blocks itCorrect
  2. BInquiring from the accounts manager whether the limit is normally respected
  3. CReading the user manual of the ERP to understand the limit setting
  4. DReviewing the year-end trial balance for unusual purchase balances

Explanation

Automated controls are best tested by re-performance or by inspecting configuration, which gives direct evidence of operation. Inquiry alone is not sufficient evidence of operating effectiveness, and a manual or trial balance review does not test the control itself. Re-performance with a test invoice shows whether the block actually works.

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