Solution-Discuss whether to use a test of controls approach

Discuss whether to use a test of controls approach

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Reference no: EM131783346

Case:

You are the auditor in charge of a car fleet leasing company, Vroom Ltd. The company owns and leases cars and related equipment to government bodies. The following table summarizes the planning outcomes of Vroom Ltd, including the preliminary assessment of inherent risk (IR), control risk (CR) and detection risk (DR).

	Preliminary Risk Assessment	Planned Approach: Test of control vs. Substantive Tests
Objective	IR	CR	DR
Disclosure and existence of finance leased assets	Medium	Medium	Medium	Primarily tests of controls with some components of substantive procedures at the balance date
Measurement and completeness of depreciation expense	Low	Low	High	More significant level of test of controls with minimal substantive procedures at the balance date
Rights and obligations in relation to vehicles	Low	Medium	High	More significant level of test of controls with minimal substantive procedures at the balance date
Valuation of vehicles	High	High	Low	No tests of controls. 100% reliance on substantive procedures

Required

(a) What are the general issues related to deciding whether to use a test of controls approach or a substantive approach?

(b) How do the risk assessments above relate to the choice of audit approach?

(c) If you adopted the approach set out in the planning summary, what audit procedures would you use for the accuracy and completeness of depreciation expense?

Reference no: EM131783346

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Discuss whether to use a test of controls approach

Reference no: EM131783346

Reference no: EM131783346

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