While planning an engagement at Sennen Logistics, the internal auditor must decide how much work to perform over two areas: a peripheral petty-cash process with minor exposure, and a core freight-pricing process central to the organisation's strategy and carrying significant risk. Exercising due professional care, how should the auditor allocate the depth of work?
- AApply identical, maximum-depth procedures to both areas so that neither area can be said to have received less attention than the other.
- BConcentrate the work on the petty-cash process because small balances are easier to test exhaustively and produce a cleaner engagement conclusion.
- CSet the depth of work for both areas at whatever level keeps the engagement within its original time budget, irrespective of relative risk.
- DDirect greater depth to the freight-pricing process, reflecting its strategic significance and its higher probability of significant error, while scaling petty-cash work to its lower risk. Correct
Why A is wrong: Uniform maximum effort seems even-handed, but it ignores relative significance and the cost against benefit balance that due professional care requires.
Why B is wrong: Ease of testing is a poor guide to effort, and steering work toward a low-risk area leaves the significant freight-pricing risk under-examined.
Why C is wrong: Letting the time budget dictate depth is convenient, but due care is driven by significance and risk, not by fitting the work to a preset schedule.
Why D is correct: A prudent, competent auditor exercising due care weighs strategy, objectives, and the probability of significant error, concentrating effort where exposure to the organisation is greatest.