11 - Evidence and sampling Flashcards
What are the procedures to obtain evidence?
Analytical procedures
Enquiry
Inspection
Observation
Recalculation
What are analytical procedures and their weaknesses? AEIOU
It is an evaluation of financial info by studying possible relationships among financial and non - financial data.
The weakness is that you need to have good knowledge of the company
Consistency is used to hide fraud. Fraudsters will hide their transaction in a section that is consistent so we don’t pick it up.
Accuracy of the benchmark. If the benchmarks are terrible then you know the procedure will be terrible.
What is enquiry and its weaknesses?
This is when you ask a relevant person for information
Integrity of those you enquire to - they might lie and give wrong info
Give the answer they know you want to hear (maybe around IC)
What is inspection and its weakness?
Inspection of a document such as an invoice or a physical asset
Documents can be falsified
Assets can be rented or borrowed so not actually theirs
What is observation and its weakness?
Observation of a process such as an inventory count
Only provides evidence that the control existed when watched - only do correct thing because you’re watching
What is Recalculation and its weakness?
Check the mathematical accuracy of a document.
Make sure it adds up but this doesn’t mean its valid
What are the different types of CATs and examples? Computer assisted audit techniques
Test data:
This is where auditors test the integrity of the clients system by posting data onto the client’s computer system to see if the transactions are posted as they should be
Example is password controls - to see if unauthorised users can access key areas of the system
Audit software:
This is where the auditor uses his own computer programmes to substantively test a balance or transaction.
Example - the most commonly used form of audit software is the spread sheet, which can check the correct casting (addition) of a set of numbers or facilitate sample selection and ratio calculations
Data analytics:
This is using IT to help identify patterns or trends. This may allow the auditor to review 100% of the population.
Examples:
Analyse sales trends by product or region
Auditors could also “mine” the clients systems to identify unusual events, anomalies and red flags.
Review staff emails within the entity helping identify risk of fraud via key words.
Review staff emails within the entity helping identify risk of fraud via key words
In what stages are the analytical procedures used?
Planning stage:
Previous FS
Budgets
Management accounts
Non financial info
Board minutes
Substantive procedure: factors to consider
Objective of the analytical procedures
Suitability of analytical procedures
Reliability of the data
AP MUST also be done at the end of the audit. Audit partner will review the audit file before signing off.
What is audit sampling?
The application of audit procedures to less than 100% of items within a population of audit so that all sampling units have a chance of selection in order to provide the auditor with a reasonable basis on which to draw conclusions about the entire population.
A population is the entire set of data from which a sample is selected and about which an auditor wishes to draw conclusion.
What are the different types of sampling?
Statistical sampling:
Random selection / systematic selection / MUS Money unit sampling.
Statistical sampling has a random selection of the sample items and the use of probability theory to evaluate sample results, including measurements of sampling risk.
Non - statistical sampling:
Uses judgment - Haphazard / Block sampling
Different types of sampling methods?
Random selection - ensures that all items in the population have an equal chance of selection. For example by use of random number tables or computerised generator.
Systematic selection - Involves selecting items using a constant interval between selections. For examples every 10th sales invoice.
Haphazard selection - An alternative to random selection provided that assurance providers are satisfied that the sample is representative of the whole population. Example is that the auditor uses their judgment to choose sample, but risk of bias.
Sequence or block selection - may be used to check whether certain items have particular characteristics. For example, a sample of 50 consecutive cheques are signed by authorised signatories rather than picking 50 single checks throughout the year.
Monetary unit sampling (MUS). This is a selection method that ensures that every £1 in a population has an equal chance of being selected.
