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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Planning, materiality and assessing the risk of material misstatement

Auditors of Zephyr Mining plc perform substantive analytical procedures on monthly royalty expense. Which approach would be MOST appropriate under ISA 520 in obtaining sufficient appropriate evidence from this procedure?

The auditor should form an independent expectation from reliable data, set an acceptable difference threshold, and investigate differences beyond it. Relying on management's expectation, unreliable data or merely the direction of movement does not give sufficient appropriate substantive evidence.

  1. ADevelop an independent expectation using reliable data, define an acceptable threshold of difference, and investigate differences exceeding itCorrect
  2. BCompare the current balance with last year's and accept it if the direction of movement is the same
  3. CAsk the finance director for expected values and use those as the expectation
  4. DPerform the procedure only at year-end using unaudited management accounts with no assessment of data reliability

Explanation

ISA 520 requires the auditor to develop an expectation, consider the reliability of data, determine the amount of difference acceptable without investigation, and compare. Using management's expectation or unreliable data undermines the independence and reliability of the evidence. Merely matching direction of movement is not precise enough.

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