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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Other current issues

Alder Audit uses an AI tool to analyse the full population of Brightwater Ltd's journal entries and flag unusual ones. The audit senior proposes to treat the tool's output as conclusive evidence of no fraud if nothing is flagged. Which response is most appropriate?

The auditor may use the AI tool, but must assess the tool's logic, data completeness and reliability and keep professional scepticism. A lack of flagged entries does not prove there is no fraud, and audit risk is never fully eliminated even with full-population testing.

  1. AAccept the proposal, as full-population testing eliminates audit risk
  2. BReject the use of technology because ISAs require manual testing of journals
  3. CUse the tool only after the audit opinion has been signed
  4. DEvaluate the tool's design, data completeness and reliability and keep professional scepticism, because the absence of flags does not prove there is no fraudCorrect

Explanation

Under ISA 330 and ISA 240, journal entry testing is a required response to management override risk, and technology may be used. However, the auditor must ensure the completeness and accuracy of the input data and the suitability of the tool's criteria, and must still apply professional scepticism. Audit risk is never eliminated, so the proposal is wrong.

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