A retail entity uses electronic data interchange (EDI) in executing and recording most of its purchase transactions. The entity's auditor recognizes that the documentation of the transactions will be retained for only a short period of time. To compensate for this limitation, the auditor most likely would:

Question

Quizplus · Accepted Answer

Choice "B" is correct. When an entity transmits, processes, maintains, or accesses significant information electronically, some accounting data and source documents may be available only in electronic form, or only at a certain point in time. The auditor would generally perform tests of controls several times during the year to compensate for this limitation. Choice "A" is incorrect. Increasing the sample size related to cutoff testing will not provide evidence about transactions occurring throughout the period under audit, since cutoff testing relates to year-end. Choice "C" is incorrect. Auditing 100% of the year-end inventory does not provide evidence about transactions occurring throughout the period under audit. Choice "D" is incorrect. Failure to retain documentation for longer periods of time would not imply that control risk is reduced. If anything, this might lead to an increase in control risk, making it less likely that phony transactions would be detected after the fact.

A Retail Entity Uses Electronic Data Interchange (EDI) in Executing