Para 3.22.13 — MSO (Audit)
Original Rule Text
3.22.13 If the direct substantive testing approach is chosen, a sample of transactions should be selected and tested. The results of the preliminary evaluation will be particularly of assistance in this context because it would have:
(i) enabled an overall assessment of the control environment and identified any serious weaknesses that should be raised with the auditee;
(ii) afforded sufficient familiarity with the system to facilitate selection of appropriate transactions for testing and their efficient substantiation; and
(iii) provided sufficient information to determine the initial requirement for any Computer Assisted Audit Techniques (CAATs).
- B. Systems-based Audit
What This Means
When using direct substantive testing, auditors select a sample of transactions and verify them for correctness. The preliminary evaluation helps by providing familiarity with the system (enabling smart sample selection), identifying serious control weaknesses to flag with the auditee, and indicating whether Computer Assisted Audit Techniques (CAATs) are needed.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- 1Direct substantive testing involves selecting and testing a sample of transactions
- 2Preliminary evaluation helps assess the overall control environment
- 3Serious weaknesses identified should be raised with the auditee
- 4System familiarity from the evaluation helps select appropriate transactions
- 5CAATs may be needed and preliminary evaluation helps determine this
Practical Example
The auditor chooses direct substantive testing for a department's computerised payment system. Using insights from the preliminary evaluation, they know that payments above Rs 5 lakh bypass one approval layer due to a known control weakness. They specifically select 100 high-value payments for testing. They also use CAAT software to extract all payments processed on weekends, finding 15 unauthorised transactions worth Rs 8 lakh.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
What are Computer Assisted Audit Techniques (CAATs)?▼
How does the preliminary evaluation improve substantive testing?▼
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.