During the audit of Apex Ltd., the auditor plans to place reliance on the internal controls related to the revenue recognition process, which appear…
CA Intermediate · Auditing and Ethics · RTP · September 2025
During the audit of Apex Ltd., the auditor plans to place reliance on the internal controls related to the revenue recognition process, which appear well-designed based on the preliminary assessment. However, due to materiality of revenue and the inherent risk of overstatement, the auditor concludes that more persuasive audit evidence is needed to evaluate the effectiveness of these controls. Discuss the matters the auditor may consider in determining the extent of test of controls.
Suggested Answer and Working Notes:
When more persuasive audit evidence is needed regarding the effectiveness of a control, it may be appropriate to increase the extent of testing of the control as well as the degree of reliance on controls. Matters the auditor may consider in determining the extent of test of controls include the following: The frequency of the performance of the control by the entity during the period.The length of time during the audit period that the auditor is relying on the operating effectiveness of the control.The expected rate of deviation from a control.The relevance and reliability of the audit evidence to be obtained regarding the operating effectiveness of the control at the assertion level.The extent to which audit evidence is obtained from tests of other controls related to the assertion.
Topics: Risk Assessment and Internal Control
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