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and proved effective. This is because the details entered by customers in control activity 1 would provide the relevant details to perform the credit check conducted at control activity 2.For control activity 2, in order to rely on this control, you would need to obtain reasonable evidence that the control was operating throughout the period. Therefore, you would need to obtain additional samples for May and June 20X3, and test that the control was operating effectively for the samples selected. Regarding control activity 3, ISA 500 para. 6 requires the auditor to:Design and perform audit procedures that are appropriate in the circumstances for the purpose of obtaining sufficient appropriate audit evidence.ISA 330 also specifically requires the auditor to design and perform tests of controls to understand how the controls operated at ‘... relevant times during the period under audit’ (para. 10(a)(i)). The appropriateness of the audit evidence has been affected by the CFO’s request to limit testing to July 20X3. This is outside the current audit period and the control is such that it would need to be tested throughout the period. Therefore, any audit evidence gathered after 30 June 20X3 regarding the implementation of automated control activities will be inappropriate for the purposes of this audit. Given that you cannot gain sufficient appropriate audit evidence
Chartered Accountants Program Audit & AssuranceUnit 9 – Activities and solutionsPage 9-17 ACTof the reliability of the control activity, you must adopt the risk response: substantive testing procedures.Task 3 The revenue cycle relates mainly to:•Class of transactions – sales.•Account balances at period end – accounts receivable.The control activities, related accounts and assertions are outlined in the following table: Revenue cycle control activities Relevant accountKey assertionsJustification1. New publishers must log in to the online system, complete mandatory detail fields for invoicing, establish a password and accept the terms of trade, including the fact that a credit check may be carried out on the publisher on acceptance of terms of tradeSales Accounts receivableOccurrence ExistenceFor future transactions recorded as a result of using the online system, the control activity provides reasonable assurance that the transaction actually occurs and pertains to the entityThe appropriately functioning online ordering system, complete with unique customer logins requiring verification from the customer, provides evidence that accounts receivable exist2. For new publishers, ABKO performs a credit check through a credit rating agency and sets the appropriate credit limitAccounts receivableExistence Valuation and allocationCredit rating checks provide assurance that customers recorded in the system (and associated account balances at period end) existCredit rating checks provide assurance that customers recorded in the system have capacity to pay their accounts when invoiced3. The online ordering system is integrated