ACCA Strategic Professional · Advanced Audit and Assurance (International) · Completion and final review
While performing the overall analytical review at completion of the audit of Corvus Ltd, the auditor finds that the gross margin has risen from 32% to 41% with no explanation from management, and this contradicts earlier audit evidence on inventory. What should the auditor do under ISA 520 Analytical Procedures?
The auditor should investigate the unexpected margin increase, perform additional procedures to decide whether a material misstatement risk exists, and reconsider the earlier risk assessment. ISA 520 treats such inconsistencies as requiring corroborated explanations, so management's verbal assurance or an emphasis of matter paragraph is not enough.
- AAccept management's verbal assurance that the trend reflects improved efficiency
- BInvestigate the fluctuation, perform additional audit procedures as needed to conclude whether a risk of material misstatement exists, and reconsider earlier risk assessmentsCorrect
- CDisregard it because analytical procedures at completion are not required to be acted on
- DInclude an emphasis of matter paragraph describing the margin change
Explanation
ISA 520 requires analytical procedures near the end of the audit to help form an overall conclusion. Where they identify unexpected relationships or inconsistent information, the auditor must investigate and perform additional procedures, possibly revising the risk assessment. Verbal assurance alone is not sufficient evidence, and an emphasis of matter does not substitute for obtaining evidence.
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