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ACCA Audit and Assurance > 8: Sufficient and appropriate evidence > Flashcards

8: Sufficient and appropriate evidence Flashcards

1
Q

What is sampling risk?

A

The possibility that the auditors’ conclusions, based on a sample, may be different from the conclusion that would be reached if the entire population was tested.

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2
Q

What are 5 sampling methods?

A
  • Random
  • Systematic
  • Monetary unit
  • Haphazard
  • Block selection
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3
Q

What kind of sampling is below?

Ensures each item in a population has an equal chance of selection, for example, by using random number generators or tables.

A

Random

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4
Q

What kind of sampling is below?

This involves having a constant sampling interval, such as every 40th item being selected, the starting point for testing is determined randomly

A

Systematic

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5
Q

What kind of sampling is below?

This is a type of value-weighted selection in which sample size, selection and
evaluation results in a conclusion in monetary amounts.

A

Monetary

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6
Q

What kind of sampling is below?

Here the auditor selects the sample without following a structured technique. The auditor must ensure that no conscious bias or predictability arises and this method is not appropriate when using statistical sampling.

A

Haphazard

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7
Q

What kind of sampling is below?

This involves selection of a block(s) of continuous items from within the population. Block selection cannot ordinarily be used in audit sampling because most populations are structured such that items in a sequence can be expected to have similar characteristics to each other, but different characteristics from items elsewhere in the population.

A

Block selection

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8
Q

What are the two characteristics of statistical sampling?

A

i. Random selection of the sample items, and

ii. The use of probability theory to evaluate sample results, including measurement of sampling risk.

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9
Q

What does statistical sampling allow for?

A

Each sampling unit to stand an equal chance of selection.

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10
Q

If a sampling method does not hold the characteristics below

i. Random selection of the sample items, and
ii. The use of probability theory to evaluate sample results, including measurement of sampling risk.

Then it is what kind of sampling?

A

Non-statistical sampling

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11
Q

What sampling methods are examples of statistical sampling?

A

Random sampling
Systematic sampling
Monetary unit sampling

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12
Q

What sampling methods are examples of non-statistical sampling?

A

Haphazard sampling

Block selection

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13
Q

What kind of source is audit evidence most reliable when obtained from?

A

Independent sources

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14
Q

What do we need to verify in relation to Transactions and Events?

6 things

A 
Completeness
Occurrence
Cut off
Classification
Accuracy
Presentation
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15
Q

What do we need to verify in relation to account balances?

5 things

A 
Valuation
Existence
Rights and obligations
Completeness
Presentation
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16
Q

Describe completeness

A

– All assets, liabilities and equity interests that should have been recorded have been recorded.

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17
Q

Describe Accuracy

A

the information processed is correct or appropriate

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18
Q

Describe classification

A

the transaction has be allocated to the right account description

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19
Q

Describe Cut off

A

the transaction has been dealt with in the right accounting period

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20
Q

Describe occurance

A

that the transaction has taken place

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21
Q

Describe valuation

A

–Assets, liabilities and equity interests are included in the financial statements at appropriate amounts
-and any resulting valuation or allocation adjustments are appropriately recorded.

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22
Q

Describe existance

A

Assets, liabilities and equity interests exist

23
Q

Describe rights and obligations

A

Rights is the ability to have the use of those assets, obligation is the need to pay
something over to others

24
Q

Describe presentation

A
  • transactions and events are appropriately described, and

- related disclosures are understandable in the context of the financial reporting framework

25
Q

What are the two aspects of Sufficient Appropriate Evidence?

A
  • Compliance testing / test of controls

- Substantive testing

26
Q

What is Compliance testing / test of controls?

A

Test the client systems to see if they are being followed

27
Q

What is Substantive testing?

A

Test the amounts in the financial statements

28
Q

What is the acronym for the types of audit work?

A

AEIOU

29
Q

What are the types of audit work using AEIOU?

A 
Analytical procedures
Enquiry
Inspection
Observation
recalcUlate

Also

  • Reperformance
  • Confirmation
30
Q

What type of audit work is below?

Consists of seeking information of knowledgeable persons, both financial and non-financial, within the entity or outside the entity.

A

Enquiry

31
Q

What type of audit work is below?

Consist of evaluations of financial information through analysis of plausible relationships among both financial and non-financial data.

A

Analytical procedures

32
Q

What type of audit work is below?

Involves examining records or documents, whether internal or external, in paper form, electronic form, or other media, or a physical examination of an asset.

A

Inspection

33
Q

What type of audit work is below?

Consists of looking at a process or procedure being performed by others.

A

Observation

34
Q

What type of audit work is below?

Consists of checking the mathematical accuracy of documents or records. Recalculation may be performed manually or electronically.

A

Recalculation

35
Q

What type of audit work is below?

Involves the auditor’s independent execution of procedures or controls that were originally performed as part of the entity’s internal control.

A

Re-performance

36
Q

What type of audit work is below?

Specific form of enquiry tends to be external, for example circulation of receivables, or bank letter

A

Confirmation

37
Q

What are the two types of CAAT’s?

A

 Audit software

 Test data

38
Q

What does CAAT’s stand for?

A

Computer Assisted Audit Techniques

39
Q

What is auditing around the computer?

A
  • internal’ software of the computer is not documented or audited by the auditor
  • the inputs to the computer are agreed to the expected outputs to the computer.
40
Q

Why does auditing around the computer increase audit risk?

A

-The actual computer files and programs are NOT TESTED.
-Therefore no DIRECT evidence thatthe programs are working as
documented

  • Where errors are found it may be difficult or even impossible to determine why those errors have occurred.
  • If amendments cannot be made, there is an increased likelihood that the audit report will be modified`
41
Q

What are the 5 things audit packages are generally designed to do?

A 
 Read computer files
 Select information
 Perform calculations
 Create data files, and
 Print reports in a format specified by the auditor
42
Q

Give an example of the advantage of CAAT’s below

CAAT’s force the auditor to rely on programmed controls during the audit.

A

Inventory descriptions within a system can only be changed by an authorized person. A computer assisted check will test that this is the case.

43
Q

Give an example of the advantage of CAAT’s below

CAATs enable the audit team to test a large volume of inventory data accurately and quickly.

A

Checking the depreciation charged on each asset would be quicker with a computer assisted program than manually

44
Q

Give an example of the advantage of CAAT’s below

CAAT’s test original documentation instead of print outs, therefore the authenticity of the document is more valid this way.

A

Actual wages will be tested instead of paper copies.

45
Q

Give an example of the advantage of CAAT’s below

Cost effective

A

After initial set up costs, using CAAT’s are likely to be cost effective, as the same audit software can be used each year as long as the system doesn’t changed

46
Q

Give an example of the advantage of CAAT’s below

Frees up audit team

A

The use of CAATs frees up audit team members to focus on judgemental and high risk areas, rather than number crunching.

47
Q

Give an example of the advantage of CAAT’s below

CAATs results can be compared with traditional audit testing.

A

If these two sources agree, then overall audit confidence will increase.

48
Q

Give an example of the disadvantage of CAAT’s below and a resolution

Limitations

A

Example
CAAT’s will be limited depending on how well the computer system is integrated.

Recommendation
Ensure you understand the system to assess whether audit software will be relevant for the company.

49
Q

Give an example of the disadvantage of CAAT’s below and a resolution

Costs

A

Example
-It takes time to design CAAT’s tests therefore may not be cost effective

Recommendation
-A cost benefit analysis from the audit point of view should be carried out

50
Q

Give an example of the disadvantage of CAAT’s below and a resolution

Lack of software documentation

A

Example
If the company you are auditing cannot confirm all system documentation is available

Recommendation
Shouldn’t use audit software until these have been
identified.

51
Q

Give an example of the disadvantage of CAAT’s below and a resolution

Use of copy files

A

Example
Clients tend to provide the auditors with copies of the system notes and any other relevant information.

Recommendation
To ensure the files are genuine either the auditor should supervise the copying or use the originals in the first place.

52
Q

Give an example of the disadvantage of CAAT’s below and a resolution

Damaged computer systems

A

Example
Dummy process testing limits of the system may damage it

Recommendation
Ensure as auditors we understand the system and have support if need be from software experts

53
Q

Give an example of the disadvantage of CAAT’s below and a resolution

Need to reverse or remove dummy transactions

A

Example
The transactions may be incorrectly or incompletely removed, leaving dummy data in a live system.

Recommendation
Ensure there is a process for ensuring all dummytransactions are cleared

ACCA Audit and Assurance (12 decks)

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