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?

A Rely on the control with reduced substantive procedures since design is sound.
B Do not rely on the control; design and perform substantive procedures responsive to the risk, including detailed cut-off and contract testing.
C Replace substantive procedures with analytical review since it’s a detective control.
D Increase overall materiality to offset risk.
E Accept management representation in lieu of testing because failures were intermittent.
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