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CA Final · Advanced Auditing, Assurance and Professional Ethics · Digital Auditing & Assurance

CA Imran is auditing Zenith Finserv Ltd and uses a data analytics tool on the full population of loan disbursement transactions. The tool flags 40 unusual transactions out of 12,000, and Imran proposes to treat the full-population analysis as sufficient and not examine the flagged items further because the exercise covered 100% of data. Which statement is correct?

Imran should investigate the 40 flagged transactions and obtain corroborating evidence. Full-population analytics only identifies exceptions; it does not conclude on them. Whether they are misstatements or indicate fraud must be evaluated, including their possible aggregate effect, rather than ignored because coverage was complete.

  1. AHe is correct, since 100% coverage removes any need for further evidence
  2. BHe should investigate the flagged items and obtain corroborating evidence, because analytics output identifies exceptions but is not by itself conclusion on themCorrect
  3. CHe should drop the flagged items if each is below the overall materiality
  4. DHe should discard the analytics and perform only sampling of 40 items from the population

Explanation

Analytics over the full population identifies anomalies, but the auditor must follow up exceptions with inquiry and corroborative evidence to conclude on whether they are misstatements. Coverage does not replace evaluation. Individual items below materiality may still indicate fraud or aggregate misstatement, and discarding the analytics wastes useful evidence.

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