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CMA Intermediate · Corporate Accounting and Auditing · Report on Internal Financial Control over Financial Reporting

The auditor of Kaveri Textiles Ltd plans to test a control that is performed once per quarter by the finance controller. Which sampling approach is most appropriate for testing its operating effectiveness?

The auditor should test all four occurrences, because a quarterly control has a population of only four items per year. Sampling beyond that is impossible, while testing a single instance or relying on inquiry would not provide sufficient appropriate evidence of operating effectiveness.

  1. ATest a sample of 60 instances because quarterly controls need large samples
  2. BTest all four occurrences, as the population is very smallCorrect
  3. CTest only the first occurrence and extrapolate to the year
  4. DRely on inquiry alone as the frequency is low

Explanation

A quarterly control has only four occurrences in the year, so a meaningful sample cannot be drawn beyond the population itself. Auditors typically test all or nearly all instances of very infrequent controls. Sampling 60 is impossible, and testing one or relying on inquiry gives insufficient evidence.

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