Reference no: EM132536121

Question - Your client Chicken Supremacy Ltd is a manufacturer of fancy dress costumes. At the planning stage, your preliminary assessment of internal controls in relation to purchases and payables suggested a low control risk. Your audit plan therefore included a combined audit approach in relation to purchases and payables with reliance being placed on internal control procedures followed by a reduction in the level of substantive testing.

You have just completed your tests of controls in relation to the purchases system and the result of the initial testing showed a projected error rate greater than the tolerable error. Your review of the results indicated that the errors were not isolated incidents, the samples were representative of the population as a whole and further testing confirmed the initial results.

Required -

(a) Discuss the impact of the results of the tests of controls on purchases and payables.

(b) How would your approach differ if the errors were found to be isolated to a two-week period when the purchase ledger officer was on annual leave.