Flashcards
Sampling and the risk response phase
Cards in this deck (29)
- 1What is audit sampling?Required when an auditor does not test entire groups of transactions or all items in a balance ASA 530
- 2What is sampling risk?Risk that the sample chosen by auditor is not representative of the population available for testing & causes the auditor to arrive at an inappropriate conclusions. Risk the audit is ineffective or inefficient
- 3What would cause an increased audit risk that the audit is ineffective (sampling and tests of controls)?Auditor concludes that the clients system of internal control is effective when ineffective
- 4What would cause an increase in the audit effort when not required - that the audit would be inefficient? (sampling and tests of controls)?When an auditor concludes that a clients system of internal controls is ineffective when its effective
- 5What would cause an increased audit risk that the audit is ineffective (sampling and substantive tests?The risk that an auditor concludes that a material misstatement does not exist when it does
- 6What would cause an increase in the audit effort when not required - that the audit would be inefficient? (sampling and substantive tests??The risk that an auditor concludes that a material misstatement exists when it does not
- 7What is non sampling risk?Risk that an auditor comes to an inappropriate conclusion for a reason unrelated to sampling issues. eg use inappropriate audit procedures, fail to gather evidence on most relevant assertion
- 8What is statistical sampling?Involves random selection of sample and probability theory to evaluate the results including sampling risk. Allows measurement of sampling risk but can be costly
- 9What is non - statistical sampling?Allows the auditor to use judgement to select sample items. More likely used when account risk is low and corroborating evidence is available
- 10What are the 5 sampling methodsRandom selection
Systematic selection (divide no of items in population, giving sample interval and take every nth item)
Haphazard selection
Block selection (select items grouped together - non statistical method)
Judgemental selection - 11What 5 factors do you need to consider when selecting a sample?Assess CR
Set DR
Set planning materiality (PM)
Select an appropriate population for testing
Define error for test and set tolerable error and confidence level required - 12When determining size of sample size for control testing ASA 530 requires the auditor to make the sample size LARGER if (3)1.)The auditor tends to rely more heavily on that control to reduce substantive testing
2.)If the auditor expects the population to have a higher rate of deviation for that control
3.) if the auditor requires greater confidence that the control is operating effectively (ie lower CR risk) - 13When determining size of sample size for control testing ASA 530 requires the auditor to make the sample size SMALLER if (1)The auditor is willing to tolerate a higher deviation rate for that control
- 14When determining size of sample size for control testing what would have a negligible effect on sample size?If population has more sample units
- 15When determining the factors that influence sample size for substantive testing ASA states the auditor would require a larger sample size if (3)1.) the auditor assess the risk of material misstatement as greater (high IR, CR)
2.) if the auditor requires greater confidence from tests
3.) If the auditor expects to find greater misstatement in population - 16When determining the factors that influence sample size for substantive testing ASA states the auditor would require a smaller sample size if (3)1.) If the auditor is also using other substantive procedures for the same assertion
2.) if the auditor is willing to accept greater total error (higher tolerable misstatement)
3.) if the auditor is using stratification of the population - 17When determining size of sample size for substantive testing what would have a negligible effect on sample size?If the population has more sample units
- 18What should the auditor consider when evaluating sample tests results? (2)1. When testing controls - consider whether the results of thier tests applied to the sample show evidence that the control is effective in the entire population
2.) When testing transactions/balances if the results of the test applied to the sample provide evidence that the class of transaction or balance is fairly stated.
If errors are found in sample calculate for population - 19What should the auditor consider when evaluating sample tests results if the sample is representative of the population and you have a high degree of confidence? (2)1.) conclude deviation from controls at same rate as deviation for controls in population. Is the deviation rate tolerable - if not more testing may be req
2.) project monetary errors in to population - 20What is the formula for projecting monetary errors in to populationpopulation/ sample size x error.
Is the projected error within the tolerance? - 21What are the control testing procedures?1.) Inspection of documents for evidence of authorization
2.) Inspection of documents for evidence that details included have been checked by appropriate client personnel.
3.)Observation of client personnel performing tasks eg stock take
4.) Enquiry of client personel about how they perform jobs
5.) Re-performing control procedures to test effectiveness - 22What are the types of substantive testing? (3)1.)Substantive tests of transactions
2.)Substantive tests of balances
3.)Analytical procedures (when CR is low can rely more on analytical procedures and less on the first two) - 23What are some examples of substantive procedures? (8)1.) Bank confirmation about interest rates on borrowings (accuracy assertion)
2.) Inspecting documents to verify amounts of transactions posted around year end (cut off)
3.) inspecting suppliers inv to verify amounts (completness)
4.) Confirmation from debtors for amounts owed (completeness)
5.) Recalculation of wages payable (valuation & allocation)
6.) Estimate depreciation (ave dep rate x asset balances) (accuracy)
7.) Compare inventory balances to last year (completeness, valuation and allocation assertions)
8.) Estimate revenue (occurrence and accuracy assertions) - 24What is the nature of audit testing? (ASA 330)Its the purpose of the test, which assertion is being tested and the procedure being used (inspection, observation, inquiry, confirmation, recalculation, re-performance or analytical procedure. It basically HOW to gather
- 25What is the timing of audit testing? (ASA 330)Date that evidence relates to
Stage of audit when procedures are performed
-interim testing is usually done for control testing & low risk A/C
- end of year account testing is usually done for high risk a/c, a/c affected by high deviation, and cut off assertions - 26What is the extent of audit testing? (ASA 330)Refers to the amount of audit evidence gathered and the size of sample. Inc when adopting lower assessed level of control risk, or when control testing confirms lower CR. Do little or no control testing when adopting a predominantly substantive strategy
- 27What is involved with drawing conclusionsAuditor arrives at conclusions
Management and audit committees/board are informed of identified misstatements
The lead partner will form an opinion on the truth and fairness of the financial report - 28What goes in the permanent file?Client infor that pertains to more than one audit eg address, key personel constitution, long term contracts, main A/C polices, copies of prior audits
- 29What goes in the current file?Evidence gathered in this audit
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- Degree Audit Flashcards on Sampling and the risk response phase, created by Lisa Tatham on 27/04/2016.
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- Lisa Tatham
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