Para 2.1.13 — MSO (Audit)
Original Rule Text
2.1.13 During the planning stage, the auditor should make a preliminary assessment of the internal controls in the auditee organisation and determine whether adequate reliance can be placed on the controls. If the auditor concludes that the control mechanisms are reliable, actual compliance testing of the controls can be undertaken in the execution stage of audit. If, however, the auditor concludes at the planning stage itself that reliance cannot be placed on the controls, further compliance testing of the controls is not necessary.
What This Means
During audit planning, the auditor should first make a preliminary assessment of the auditee's internal controls. If the controls appear reliable, formal compliance testing is done during the audit execution stage. However, if the auditor concludes during planning itself that the controls cannot be relied upon, there is no need for further compliance testing — the auditor proceeds directly to more detailed substantive testing.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- 1Preliminary assessment of internal controls happens during the planning stage
- 2If controls seem reliable, compliance testing is done during execution stage
- 3If controls are clearly unreliable at the planning stage, skip compliance testing
- 4Unreliable controls mean the auditor goes straight to substantive testing
- 5This assessment determines the overall audit approach
Practical Example
While planning the audit of a state treasury, the auditor notices that the treasury has no system for reconciling daily receipts with bank statements and that supervisory checks are non-existent. Since internal controls are clearly unreliable, the auditor skips compliance testing and instead plans for comprehensive transaction-level substantive testing of all receipts.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
What happens if internal controls are found unreliable during planning?▼
Can the auditor change the approach after starting the audit?▼
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.