Question
An auditor identifies a significant risk around revenue
cut-off due to manual end-period adjustments and complex multi-element contracts. The client proposes reliance on a detective control: monthly reconciliation of shipped-not-billed and deferred revenue by finance. Control design appears sound but testing shows intermittent failures. What is the most appropriate audit response?Solution
For significant risks, SA 330 requires substantive procedures that are specifically responsive (tests of details are often necessary). If operating effectiveness is not supported, the control cannot be relied upon; increase the nature, timing, and extent of substantive procedures around cut-off and contracts.
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