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CMA Intermediate · Corporate Accounting and Auditing · Application of Technology in Audit and Audit Trail

Which procedure is an advantage of using CAATs for testing journal entries of a large company?

CAATs allow the auditor to test the entire population of journal entries and filter for unusual features such as holiday postings or unauthorised users. They do not guarantee fraud detection, nor do they remove the need to understand IT systems or to gather independent evidence.

  1. AEntire population can be tested for unusual entries such as those posted on holidays or by unauthorised usersCorrect
  2. BIt guarantees detection of all fraud
  3. CIt eliminates the need to understand the entity's IT environment
  4. DIt allows the auditor to rely on management representation alone

Explanation

CAATs let the auditor examine 100% of journal entries and filter for risk indicators like holiday postings, round amounts or unauthorised users. They cannot guarantee fraud detection, and the auditor still needs to understand the IT environment and obtain independent evidence.

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