i) Use of Audit Software in the Audit of Revenue and Trade Receivables:

1. Sequence Checks on Pre-Numbered Documents:
   • Audit software can perform sequence checks on pre-numbered documents such as invoices and credit notes to ensure that all documents are accounted for and that there are no missing or duplicated documents.
2. Data Extraction and Analysis:
   • Audit software can extract large volumes of data from the client’s accounting system and analyze it for unusual patterns or anomalies. For example, it can identify outliers in sales data or detect irregularities in customer accounts.
3. Recalculation of Key Figures:
   • The software can be used to recalculate key figures such as the aging of receivables, the sales ledger, and revenue totals. This helps to verify the accuracy of the financial records by ensuring that calculations are correct.
4. Generating Reports for Substantive Testing:
   • Audit software can generate detailed reports that support substantive testing. For instance, it can create an aged analysis of receivables, which can then be used by the auditor to identify overdue accounts and assess the need for provisions.
5. Audit Trail Verification:
   • The software can help verify the audit trail by tracing transactions from the financial statements back to source documents. This ensures that transactions have been recorded correctly and that there is a clear link between the records and the underlying documentation.
6. Selection of Sample Transactions:
   • Audit software can be used to select a stratified sample of transactions for further testing. This ensures that the sample is representative of the population and that the auditor’s testing covers all relevant areas of the audit.

(3 points @ 2 marks each = 6 marks)

ii) Reliance on the Internal Auditor’s Use of Embedded Software:

1. Organizational Status and Independence:
   • The external auditor should assess the organizational status and independence of the internal audit function. If the internal auditors are independent and report directly to those charged with governance, their work, including the use of embedded software, may be more reliable.
2. Scope and Nature of Work Performed:
   • The external auditor should evaluate the scope and nature of the work performed by the internal auditors using embedded software. The relevance and adequacy of the procedures applied by the internal auditors in relation to the audit objectives will determine the extent of reliance.
3. Competence and Due Care:
   • The external auditor should assess whether the internal auditors have the necessary competence and have exercised due care in using embedded software. This includes reviewing the internal auditors’ qualifications, training, and experience with such software.
4. Security and Accuracy of Embedded Software:
   • The external auditor should evaluate the security measures in place to protect the integrity of the data processed by the embedded software. Additionally, the accuracy and reliability of the software outputs should be verified to ensure that the audit conclusions are based on sound evidence.