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In data-driven audit, the False-Positive Rate of an exception flag is HIGH. The auditor's appropriate response is to:
AIssue an adverse opinion
BSample only 5% of flagged items
CRefine the rule by adding precision criteria (e.g. excluding known reconciling items) before reviewing
DIgnore all flagged items
Answer & Solution
Correct answer: D. Ignore all flagged items
1. A high false-positive rate dilutes auditor effort.
2. Refining the rule (precision filters) is the standard data-analytics response.
3. Ignoring or sampling without refinement loses information; an adverse opinion is unwarranted.
_Source: ICAI BoS CA Final Paper 3, Ch 4 "Special Aspects of Auditing in an Automated Environment"_
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