Comprehensive and Detailed Step-by-Step Explanation:Reference to IIA Standards:IIA Performance Standard 1220.A2: Internal auditors must consider using technology-based audit techniques and other data analysis tools.Performance Standard 2320 - Analysis and Evaluation: Sufficient and appropriate analysis should be performed to achieve the engagement's objectives.Best Audit Practice for the Scenario:Option A involves using generalized audit software (GAS) to extract relevant data from the loan file and stratify it based on specific criteria (e.g., age of loans, collateral backing). This ensures a statistically valid sample.By examining a stratified sample, the auditor can determine whether each loan is sufficiently collateralized, aged correctly, and categorized properly.This method provides comprehensive coverage while maintaining efficiency and adhering to best practices.Why Other Options Are Less Effective:Option B: A block sample only includes loans over a certain dollar threshold, which introduces a selection bias and overlooks smaller loans, making the sample less representative.Option C: A discovery sample limited to loan applications focuses on documentation compliance (e.g., collateral statements) but does not address loan aging or categorization.Practical Implications:Generalized audit software automates data analysis, reduces manual effort, and increases the reliability of audit conclusions.By selecting a representative statistical sample stratified by population characteristics, auditors gain insights that are applicable to the entire population.
Comprehensive and Detailed Step-by-Step Explanation:
Reference to IIA Standards:
IIA Performance Standard 1220.A2: Internal auditors must consider using technology-based audit techniques and other data analysis tools.
Performance Standard 2320 - Analysis and Evaluation: Sufficient and appropriate analysis should be performed to achieve the engagement's objectives.
Best Audit Practice for the Scenario:
Option A involves using generalized audit software (GAS) to extract relevant data from the loan file and stratify it based on specific criteria (e.g., age of loans, collateral backing). This ensures a statistically valid sample.
By examining a stratified sample, the auditor can determine whether each loan is sufficiently collateralized, aged correctly, and categorized properly.
This method provides comprehensive coverage while maintaining efficiency and adhering to best practices.
Why Other Options Are Less Effective:
Option B: A block sample only includes loans over a certain dollar threshold, which introduces a selection bias and overlooks smaller loans, making the sample less representative.
Option C: A discovery sample limited to loan applications focuses on documentation compliance (e.g., collateral statements) but does not address loan aging or categorization.
Practical Implications:
Generalized audit software automates data analysis, reduces manual effort, and increases the reliability of audit conclusions.
By selecting a representative statistical sample stratified by population characteristics, auditors gain insights that are applicable to the entire population.