Skip to content

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

For auditing Ganga Textiles Ltd, the auditor uses data analytics to test the full population of 4.2 lakh journal entries and flags entries posted on holidays by senior management with round-figure amounts. Which statement is correct?

Flagged entries are only indicators needing further investigation. Journal entry testing responds to the presumed risk of management override, so the auditor should inquire and obtain corroborating evidence. Flags are not proof of fraud, and testing the full population does not eliminate audit risk or the need for judgment.

  1. AFlagged entries are proven fraud and must be reported as such in the audit report
  2. BUsing the full population removes the need to consider audit risk
  3. CJournal entry testing is required only if the auditor suspects fraud
  4. DFlagged entries are items for further investigation as part of responding to the risk of management override; the auditor should inquire and obtain corroborating evidenceCorrect

Explanation

Testing journal entries is a mandatory response to management override risk, not conditional on suspicion. Analytics flags indicate unusual items needing inquiry and corroboration, not proof of fraud. Full-population testing does not eliminate audit risk.

Did you get it right without looking?

One question tells you little. A timed set on Digital Auditing & Assurance shows your real accuracy, how long you take and where you lose marks.

Practise Digital Auditing & AssuranceFree diagnostic mock

More Digital Auditing & Assurance questions