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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Other current issues

During the audit of Nadir Retail, an engagement team uses an automated tool that extracts journal entries and flags those posted at weekends by senior managers. Which ISA requirement is this procedure primarily designed to address?

The procedure responds to ISA 240, which requires testing of journal entries and other adjustments because management override of controls is always a presumed fraud risk. Analytics that flag unusual timing or posters help target entries with higher risk characteristics.

  1. AThe requirement in ISA 240 to design and perform procedures to test journal entries as a response to the risk of management override of controlsCorrect
  2. BThe requirement in ISA 570 to evaluate management's going concern assessment
  3. CThe requirement in ISA 710 to compare corresponding figures with the prior period
  4. DThe requirement in ISA 560 to review events occurring after the reporting date

Explanation

ISA 240 requires journal entry testing for every audit, because management override is a presumed risk. Analytics that filter by posting date, user and seniority are a common way to select entries for testing. The other ISAs deal with different matters.

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