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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Evidence and testing considerations

Zenith Retail Ltd, a listed company audited by Marlow & Co, reports revenue up 18% on the prior year while the audit team's expectation, built from store-opening data and like-for-like sales trends, was growth of 6%. Under ISA 520 Analytical Procedures, what should the auditor do first about the difference?

The auditor should investigate the unexpected difference by asking management and then obtaining appropriate corroborative evidence for their explanations. ISA 520 requires this when results differ significantly from expectations, and management's answers alone are not sufficient audit evidence.

  1. AInvestigate the difference by making enquiries of management and obtaining appropriate corroborative audit evidenceCorrect
  2. BAccept management's explanation because analytical procedures are only a risk assessment tool
  3. CIncrease performance materiality to absorb the difference
  4. DDisregard the difference because the expectation was developed by the auditor rather than by management

Explanation

ISA 520 requires the auditor to investigate fluctuations or relationships that are inconsistent with other relevant information or differ significantly from expected values. This means enquiring of management and obtaining appropriate audit evidence relevant to the responses. Accepting an uncorroborated explanation is insufficient, and raising materiality to fit the result is improper.

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