3 - Performing Further Procedures and Obtaining Evidence (30-40%)

Question 1

The reliability of information to be used as audit evidence

Answer 1

The reliability of information to be used as audit evidence is affected to varying degrees by the following attributes, individually or in combination:

Accuracy
Completeness
Authenticity
Susceptibility to management bias

Question 2

Types of sampling risks that affect substantive testing

Answer 2

The risk of incorrect acceptance (also called beta risk), and the risk of incorrect rejection (also called alpha risk).

Since alpha risk is the chance that the statistical evidence might fail to support a fairly stated book value, it does not result in the risk that the population actually contains a misstatement

Question 3

Risk of incorrect accepntance (Beta Risk)

Answer 3

Is the chance that the statistical evidence might support fair statement of a materially misstated book value.
The risk of incorrect acceptance is controlled by adjusting the ratio of tolerable error (A) to materiality (M)

Question 4

Risk of incorrect rejection (Alpha risk)

Answer 4

Is the chance that the statistical evidence might fail to support fair statement of a correct book value. This error usually results in testing additional sample items.
This risk of incorrect rejection is controlled by decreasing reliability

Question 5

Attribute vs Variable sampling

Answer 5

Attribute sampling is used primarily for tests of controls, whereas variable sampling is most usegul for susbstantive testing

Question 6

The risk of assessing control risk too low

Answer 6

is the risk that the assessed level of control risk based on the sample is less than the true operating effectiveness of the control
If the auditor consequently assessed control risk too low, then this means the auditor should not have relied on the control

Question 7

Substantive test of details

Answer 7

Recalculation, comparison, confirmation, and verification are all substantive tests or tests of details of transactions.

Question 8

If a difference between auditor expectatives and actual resultas un Financial statement audit test cant be explained

Answer 8

The auditor should evaluate significant unexpected differences and corroborate management responses concerning these differences with other audit evidence. If a difference cannot be explained, the auditor should design other audit procedures to determine whether the difference is a likely misstatement

Question 9

If substantive procedures alone cannot provide sufficient appropriate audit evidence at the relevant assertion level.

Answer 9

The auditor should design and perform tests of controls to obtain sufficient appropriate audit evidence about the operating effectiveness of controls

Question 10

In evaluating the reasonableness of an estimate

Answer 10

the auditor normally concentrates on key factors and assumptions that are:

significant to the accounting estimate,
sensitive to variations,
deviations from historical patterns, and
subject and susceptible to misstatement and bias.