1st Part is about NATURE of AUDIT PROCEDURES in TEST of CONTROLS

It says observation gives more reliable better evidence as compared to inquiry. But it has a drawback, it gives evidence as on that time, when observation is done. So we need to collect evidence through other audit procedures such as inspection of records for other time period.
2nd Part is about Using Prior Period / Previous Period evidence in Test of Controls
Prior Period Evidence can be useful to support current period test of controls. But auditor should see what significant changes have taken place during the year and get evidences about these changes. Further if more time has elapsed between previous checking and current year, then evidence will give less assurance.
3rd Part is About Interim Checking
Interim checking means completing all checking till a specified date before year end say 31st Dec and then doing final checking as required at year end. Such thing is required in large audits where work is more and audit report is expected quickly after year end. Then they explain factors on which extent of final checking will depend. We have given shortcut for factors.
 
So first 2 parts are not having direct relation with question but they just create background.
Please comment back if you have need more explanation.

1st Part is about NATURE of AUDIT PROCEDURES in TEST of CONTROLS
It says observation gives more reliable better evidence as compared to inquiry. But it has a drawback, it gives evidence as on that time, when observation is done. So we need to collect evidence through other audit procedures such as inspection of records for other time period.
2nd Part is about Using Prior Period / Previous Period evidence in Test of Controls
Prior Period Evidence can be useful to support current period test of controls. But auditor should see what significant changes have taken place during the year and get evidences about these changes. Further if more time has elapsed between previous checking and current year, then evidence will give less assurance.
3rd Part is About Interim Checking
Interim checking means completing all checking till a specified date before year end say 31st Dec and then doing final checking as required at year end. Such thing is required in large audits where work is more and audit report is expected quickly after year end. Then they explain factors on which extent of final checking will depend. We have given shortcut for factors.
 
So first 2 parts are not having direct relation with question but they just create background.
Please comment back if you have need more explanation.