8: Sufficient and appropriate evidence

Question 1

What is sampling risk?

Answer 1

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.

Question 2

What are 5 sampling methods?

Answer 2

• Random
• Systematic
• Monetary unit
• Haphazard
• Block selection

Question 3

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.

Answer 3

Random

Question 4

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

Answer 4

Systematic

Question 5

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.

Answer 5

Monetary

Question 6

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.

Answer 6

Haphazard

Question 7

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.

Answer 7

Block selection

Question 8

What are the two characteristics of statistical sampling?

Answer 8

i. Random selection of the sample items, and

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

Question 9

What does statistical sampling allow for?

Answer 9

Each sampling unit to stand an equal chance of selection.

Question 10

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?

Answer 10

Non-statistical sampling

Question 11

What sampling methods are examples of statistical sampling?

Answer 11

Random sampling
Systematic sampling
Monetary unit sampling

Question 12

What sampling methods are examples of non-statistical sampling?

Answer 12

Haphazard sampling

Block selection

Question 13

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

Answer 13

Independent sources

Question 14

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

6 things

Answer 14

Completeness
Occurrence
Cut off
Classification
Accuracy
Presentation

Question 15

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

5 things

Answer 15

Valuation
Existence
Rights and obligations
Completeness
Presentation

Question 16

Describe completeness

Answer 16

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

Question 17

Describe Accuracy

Answer 17

the information processed is correct or appropriate

Question 18

Describe classification

Answer 18

the transaction has be allocated to the right account description

Question 19

Describe Cut off

Answer 19

the transaction has been dealt with in the right accounting period

Question 20

Describe occurance

Answer 20

that the transaction has taken place

Question 21

Describe valuation

Answer 21

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

Question 22

Describe existance

Answer 22

Assets, liabilities and equity interests exist

Question 23

Describe rights and obligations

Answer 23

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

Question 24

Describe presentation

Answer 24

• transactions and events are appropriately described, and

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

Question 25

What are the two aspects of Sufficient Appropriate Evidence?

Answer 25

- Compliance testing / test of controls | - Substantive testing

Question 26

What is Compliance testing / test of controls?

Answer 26

Test the client systems to see if they are being followed

Question 27

What is Substantive testing?

Answer 27

Test the amounts in the financial statements

Question 28

What is the acronym for the types of audit work?

Answer 28

AEIOU

Question 29

What are the types of audit work using AEIOU?

Answer 29

``` Analytical procedures Enquiry Inspection Observation recalcUlate ``` Also - Reperformance - Confirmation

Question 30

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.

Answer 30

Enquiry

Question 31

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.

Answer 31

Analytical procedures

Question 32

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.

Answer 32

Inspection

Question 33

What type of audit work is below? Consists of looking at a process or procedure being performed by others.

Answer 33

Observation

Question 34

What type of audit work is below? Consists of checking the mathematical accuracy of documents or records. Recalculation may be performed manually or electronically.

Answer 34

Recalculation

Question 35

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.

Answer 35

Re-performance

Question 36

What type of audit work is below? Specific form of enquiry tends to be external, for example circulation of receivables, or bank letter

Answer 36

Confirmation

Question 37

What are the two types of CAAT's?

Answer 37

 Audit software |  Test data

Question 38

What does CAAT's stand for?

Answer 38

Computer Assisted Audit Techniques

Question 39

What is auditing around the computer?

Answer 39

- 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.

Question 40

Why does auditing around the computer increase audit risk?

Answer 40

-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`

Question 41

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

Answer 41

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

Question 42

Give an example of the advantage of CAAT's below CAAT’s force the auditor to rely on programmed controls during the audit.

Answer 42

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

Question 43

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.

Answer 43

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

Question 44

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.

Answer 44

Actual wages will be tested instead of paper copies.

Question 45

Give an example of the advantage of CAAT's below Cost effective

Answer 45

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

Question 46

Give an example of the advantage of CAAT's below Frees up audit team

Answer 46

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

Question 47

Give an example of the advantage of CAAT's below CAATs results can be compared with traditional audit testing.

Answer 47

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

Question 48

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

Answer 48

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.

Question 49

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

Answer 49

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

Question 50

Give an example of the disadvantage of CAAT's below and a resolution Lack of software documentation

Answer 50

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.

Question 51

Give an example of the disadvantage of CAAT's below and a resolution Use of copy files

Answer 51

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.

Question 52

Give an example of the disadvantage of CAAT's below and a resolution Damaged computer systems

Answer 52

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

Question 53

Give an example of the disadvantage of CAAT's below and a resolution Need to reverse or remove dummy transactions

Answer 53

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