ACCA F8 - Audit and Assurance Revision Kit 2016

Audit software could be used to help extract an aged inventory analysis. This could in turn be used to
identify any obsolete or slow moving items, which may require a write down or an allowance.
Audit software can be used to perform calculations during testing of inventory, such as recorded cost
(eg weight or quantity multiplied by cost per kg or unit).
CAATs can be used to confirm whether inventory adjustments recorded during attendance at the
count have been correctly recorded in the final inventory records forming the basis of inventory in the
financial statements.
CAATs can be used to verify cut-off by testing whether the dates of the last GRNs and GDNs recorded
relate to pre year end, and that any with a date after the year end have been excluded from the
inventory records.
(Note: Only four procedures were required.)
(ii)
(iii)
CAATs – Advantages
– CAATs allow the audit team to test a large volume of inventory data more accurately and more
quickly than if tested manually.
– CAATs decrease the scope for human error during testing and can provide evidence of a
higher quality.
– By using CAATs, auditors can test actual inventory transactions within the system rather than
working on printouts from spool or previewed files which are dependent on other software
(and therefore could contain errors or could have been tampered with following export).
– Assuming the inventory system remains unchanged, CAATs used in the audit of Lily year on
year should bring time (and therefore cost) savings in the long term, which should more than
compensate for any set up costs.
– Auditors can utilise CAATs to test programme controls as well as general internal controls
associated with computers.
– Results from CAATs can be compared with results from traditional testing. If the results
correlate, overall confidence is increased.
– The use of CAATs allows audit team members more time to focus on risk areas and issues
requiring judgement, rather than performing routine calculations that can be carried out by
audit software.
(Note: Only four advantages were needed to gain full marks.)
CAATs – Disadvantages
– Setting up the software needed for CAATs in the first year is likely to be time consuming and
expensive.
– Audit staff working on Lily’s audit will need to be trained so they have a sufficient level of IT
knowledge to apply CAATs when auditing the inventory system.
– If testing is performed on data in the live inventory system, there is a risk that live client data
may be corrupted and lost.
– If the inventory system at Lily changed then it may be expensive and time consuming to redesign
the CAATs.
– If the inventory system at Lily is not compatible with Dafodil & Co’s CAATs then they will need
to be tailored to Lily’s system, which may be costly.
– If testing is performed on data from copies of the live files rather than the live data itself, there
is the risk that these files have been affected by the copying process or have been tampered
with.
– If there is not adequate systems documentation available, it will be difficult to design
appropriate CAATs due to a lack of understanding of the inventory system at Lily.
(Note: Only four advantages were needed to gain full marks.)
148 Answers