Delta Ltd.

Delta Ltd. maintains 8.5 million sales records in its ERP system.

The auditor uses an audit analytics tool to identify:

invoices generated outside normal business hours;
sales invoices immediately followed by credit notes;
multiple invoices having identical customer bank details;
unusually high-volume sales immediately before year-end; and
transactions posted by users with administrator privileges.

The analytics tool identifies 2,400 potentially unusual transactions.

The audit senior concludes:

“Since the analytics tool examined the entire population and identified the unusual transactions, the auditor has obtained sufficient appropriate audit evidence regarding revenue. Detailed testing of the identified transactions is unnecessary because data analytics provides stronger evidence than sample-based testing.”

Which ONE of the following is most appropriate?

A. The conclusion is correct because testing the complete population through analytics eliminates sampling risk and therefore establishes the validity of the underlying transactions.

B. The conclusion is incorrect because analytics may identify exceptions or risk indicators, but the auditor still needs to evaluate the identified items and obtain appropriate evidence relevant to the audit objectives.

C. The conclusion is correct because once the complete population has been subjected to analytics, substantive testing is required only where the analytics tool reports technical errors.

D. The conclusion is incorrect because data analytics can be used only for internal audit and cannot form part of the external auditor’s substantive audit procedures.