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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Evidence and testing considerations

Delta Components Ltd's auditor plans to use substantive analytical procedures on monthly gross margin. Which factor would most increase the reliability of the expectation developed?

Reliability improves when the data comes from an independent source or from internal records produced under effective controls. ISA 520 links data reliability to its source, nature and the controls over preparation, whereas unexplained or highly aggregated data weakens the expectation.

  1. AUsing data from within the entity that was obtained from an independent source and was subject to effective controls over its preparationCorrect
  2. BUsing budgets prepared by the finance director without any comparison to actual past results
  3. CUsing data that is disaggregated only to annual totals so differences are smoothed out
  4. DUsing unaudited management accounts with no understanding of how they were compiled

Explanation

ISA 520 states that the reliability of data is influenced by its source and nature and the controls over its preparation. Data from independent sources, or internal data subject to effective controls, is more reliable. Annual aggregation reduces precision, and uncontrolled or unexplained data lowers reliability.

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