You are performing audit work for XYZ Group for last 3 years. You are asked to perform
Question:
You are performing audit work for XYZ Group for last 3 years. You are asked to perform audit on fixed assets subsystem of the XYZ Group for year ending 31 Dec 22.
Audit manager asks you to tour the client warehouse and factories and submit a report at the planning meeting. Because of time and fee, the audit team adopts a control-based approach and will rely on results of last year's control tests during audit where possible. Last year's test confirmed effective functioning of IT application controls on customer billing system and fixed assets system software. Audit team decides to perform sample control tests rather than extensive test of controls.
Overall materiality is 1.5m and performance materiality is 70-80% of overall materiality. Clearly trivial threshold is set at $100k. Audit team assess that client fixed assets system is at significant risk.
During the audit, you discover the following:
- 1) At beginning of current year, client installed a new customer billing system and replaced its existing fixed asset systems software with new software.
- 2) All required testing confirmed successful migration of data, but customer billing system caused staff issues. E.g. unintended deletion of some customer invoices from the billing system. CFO of the group requested your audit manager to undertake routine accounting work to fix billing system problems.
- 3) CFO says that in recent years, no person was assigned to check year-end accruals for expense account.
- 4) At the end of audit, CFO offers a case of vintage wine to the audit team members.
What factors should we consider before relying on controls tested in previous year? Explain why you can/cannot rely on customer billing system and fixed asset system software controls tested in prior for current the audit?
Auditing a risk based approach to conducting a quality audit
ISBN: 978-1133939153
9th edition
Authors: Karla Johnstone, Audrey Gramling, Larry Rittenberg