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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Audit procedures and obtaining evidence

During the audit of Norvale Bank plc, the auditor uses data analytics to compare every loan's recorded interest income against an independent recalculation from contractual terms. The analysis shows 3% of loans with differences, most small, but a cluster linked to one branch is large. Which response is most appropriate?

The auditor should investigate the cluster at the one branch, determine whether it points to a control deficiency or possible fraud, and reassess risks and planned procedures. Dismissing it because the overall percentage is small, or excluding it as an outlier, would ignore important qualitative evidence.

  1. AInvestigate the branch cluster for the cause, evaluate whether it indicates a control deficiency or fraud risk, and reassess risk and further procedures accordinglyCorrect
  2. BDisregard the differences because 3% is below a typical performance materiality percentage
  3. CExtrapolate the average difference across all branches and ignore the cluster
  4. DRemove the branch from the analysis as an outlier to keep the results consistent

Explanation

Exceptions from analytics must be investigated, particularly a concentrated pattern, which may signal a control weakness or intentional misstatement. The proportion of items affected is not the materiality test, and deleting or averaging outliers would ignore qualitative indicators. The auditor then revises the risk assessment and responses.

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