ACCA Strategic Professional · Advanced Audit and Assurance (International) · The audit of performance information (pre-determined objectives) in the public sector
An auditor is planning the audit of a municipal water utility's performance report. One pre-determined objective is 'reduce water losses to below 12% of supply'. The utility measures losses using meter readings, but management admits that many bulk meters have not been calibrated for three years. What is the most appropriate implication for planning?
The auditor should assess a higher risk of material misstatement for the water-loss indicator and plan more extensive procedures over the data source and meters. Uncalibrated meters make the reported data unreliable, and a clear target or management representation cannot replace sufficient appropriate evidence.
- ATreat the indicator as low risk because the target is clearly stated
- BAssess a higher risk of material misstatement for this indicator and plan more extensive procedures over the data source and meter reliabilityCorrect
- CExclude the indicator from scope because meter data is non-financial
- DRely on management's representation that the readings are accurate
Explanation
Uncalibrated meters undermine the reliability of the underlying data, so the risk of material misstatement for this indicator is higher. The auditor should respond with more extensive procedures on the data source. A clear target does not make the measurement reliable, and non-financial data cannot be excluded merely for being non-financial. Representations alone are not sufficient evidence.
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