ACCA Strategic Professional · Advanced Audit and Assurance (International) · The audit of performance information (pre-determined objectives) in the public sector
An audit firm is appointed to audit the performance information of a state transport authority, which reports on 40 indicators. Time and resources are limited. The audit manager proposes selecting indicators for detailed testing. Which selection approach best fits planning requirements?
The auditor should select indicators using a documented risk-based approach that considers their significance to users, inherent risk, measurement complexity and past errors. Management-chosen, purely random or prior-error-only selections would ignore significant risks or introduce bias into the coverage of the engagement.
- ASelect only indicators that management has flagged as easy to verify
- BSelect indicators at random so that no bias arises, ignoring their importance
- CSelect the indicators using a risk-based approach, considering significance to users, inherent risk, complexity of measurement and past errors, and document the rationaleCorrect
- DTest only indicators that were found to be misstated in the previous year and ignore the remainder
Explanation
Selection of material indicators should be risk-based, considering significance to users, measurement complexity, inherent risk and history, with rationale documented. Management-chosen indicators introduce bias, pure random selection ignores significance, and focusing only on prior errors ignores new risks arising this year.
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