Question

Keperlsky and Bennuchi, and audit firm was auditing EDJ consulting. EDJ is a large consulting firm that has consistently had very strong internal controls over IT functions at the company. The company uses SAP, a sophisticated, Tier 1 ERP system that has not been customized. Keperlsky and Bennuchi’s audit team has reviewed and tested the internal controls and concluded that the controls are very effective (strong) and they can be relied upon. Mr. Keperlsky, a partner, has said that it is not necessary to complete substantive testing in this case, given the strength of the internal controls and a strong ERP system. Is Mr. Keperlsky’s conclusion correct? Provide justification for the answer.

Answer 1

The answer is given below

Explanation:

Yes.The ERP systems are one of such technologies used by various organizations to achieve a strategic advantage in the competitive market. The ERP systems are computer-based systems designed to process an organization's transactions. It facilitates integrated and real-time planning, production, and customer response. From an auditing perspective, ERP systems created new opportunities as well as new challenges. On one hand, the use of the system increases transparency in business processes and, it eliminates the need for controls assuring data consistency and accuracy when data move from one system to the next.

Internal control is all of the policies and procedures management uses to achieve the following goals.

• Safeguard University assets
• Ensure the reliability and integrity of financial information
• Ensure compliance
• Promote efficient and effective operations
• Accomplishment of goals and objectives

So if EDJ has strong internal control and using ERP system so the audit firm can skip substantive testing.