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

While auditing a manufacturing company, the auditor plans to use data analytics to test 100% of journal entries instead of a sample. The extraction is done from the client's ERP by the client's IT team. Which action best addresses the reliability of the audit evidence obtained?

The auditor should test the completeness and accuracy of the extracted data, for instance by reconciling record counts and control totals to the ledger. Analysing the whole population does not make source data reliable, and SA 500 requires the auditor to assess the reliability of information used as audit evidence.

  1. AAccept the extract because analysing the full population removes any need to assess its reliability
  2. BTest the completeness and accuracy of the data extract, for example by reconciling record counts and control totals to the general ledgerCorrect
  3. CReplace all substantive procedures with the analytics output and drop the risk assessment
  4. DRely on the client IT head's written confirmation that the extract is correct, without further checks

Explanation

Under SA 500, the auditor must assess the relevance and reliability of information used as evidence. Even with a full population, the extract may be incomplete or altered, so reconciling it to ledger totals tests completeness and accuracy. Option A is wrong because analysing the whole population does not make the underlying data reliable.

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