Delta audit firm was planning the audit for its existing client, Apple and Banan

Question

Delta audit firm was planning the audit for its existing client, Apple and Banana Corp. Which is a small retailing company that does not have any warehousing facilities as all stock is kept on the premises and they only have a small team of staff, which makes the separation of duties principle difficult. The preliminary tests of controls found that the internal control procedures are well designed, but not always observed due to the small number of staff. Previous experience with this client also showed that controls were not always observed. Despite this, Delta has never discovered a material misstatement in the accounts. Required: Determine and justify what audit strategy should be used?

Explanation / Answer

Well, based on the information provided here, one can conclude that the audit for the Delta should be of internal in nature. This is due to the fact that the company is a small unit with less staff and as a matter of fact, the company is not that much systematic in it's approach. So, when it comes to internal audit, this type of audit is also somehow less systematic than it's external counterpart. This audit is often less formal than external audits and is used primarily for managerial decisions.

Hence, Internal Audit will be the right choice, in this case.

Regards.

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