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

The auditor of Himalaya Retail Ltd plans to rely on the operating effectiveness of controls over sales processing, but the tests of controls reveal several deviations. Which is the correct audit response under SA 330?

When tests of controls show deviations, the auditor investigates them, reassesses the risk of material misstatement, and adjusts the nature, timing and extent of substantive procedures. Continuing reliance on the controls or ignoring the deviations would be contrary to SA 330.

  1. AContinue to rely on the controls and reduce substantive procedures
  2. BIgnore the deviations if they are small in amount
  3. CInvestigate the deviations, reassess the risk of material misstatement, and modify the nature, timing and extent of substantive procedures accordinglyCorrect
  4. DWithdraw from the engagement

Explanation

Deviations from controls on which reliance was planned require inquiry about their consequences and a reassessment of risk. If the controls are not operating effectively, the auditor increases substantive procedures. Continuing to rely, or ignoring deviations on the basis of amount, is contrary to SA 330.

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