Subject: Auditing And Assurance

You are the audit senior on the audit of Abundant Games Ltd (AGL), a large retailer of computer games. Although each sale is relatively low value, the company has a very high sales volume. You have just completed your review of AGLs internal controls over the sales for your audit for the year ended 30 June 2020. Based on your review, you have concluded that AGLs internal control over sales is excellent. As a result, you have suggested an audit strategy for sales of extensive testing of the controls and, if they prove to be effective, relying solely on those controls to gain reasonable assurance that the sales information is fairly stated. However, your audit manager has asked you whether you have considered the inherent limitations of internal control in designing your audit strategy.

a) Explain the audit managers concern.

b) What would be a more appropriate audit strategy? Justify your answer.