A3

Question 1

What are the three factors that affect the relevance of audit evidence?

Answer 1

Nature, extent, and timing of audit procedures

Question 2

How does the auditor assess control risk at less than maximum?

Answer 2

If the test of controls supporting operating effectiveness

Question 3

What is a line chart used for?

Answer 3

Best way to demonstrate trends because they appropriately address the forward-moving concept

Question 4

How do you calculate the projected misstatement for a population (i.e, population=1,000, sample = 50, error = $3,000)

Answer 4

Population / sample size = sample factor -> 1000/50 = 20

Sample factor * error –> 20 * $3,000 = 60,000

Question 5

What is the result of decreasing the acceptable level of risk?

Answer 5

result in a larger sample size

Question 6

What is the relationship between risk of incorrect acceptance and sample size?

Answer 6

Inverse relationship (if risk of incorrect acceptance increases -> sample size decreases)

Question 7

What is the relationship between Tolerable misstatement and sample size?

Answer 7

Inverse relationship (if tolerable misstatement increases the sample decreases)

Question 8

When is the use of ratio estimation sampling most effective?

Answer 8

Most effective if there is a correlation between book values and audit amounts

Question 9

Define a diagnostic analytic?

Answer 9

Explain why something happened

Question 10

Define a descriptive analytic

Answer 10

describe what happend

Question 11

Define a Predictive analytic

Answer 11

provide expected or predicted outcomes based on historical data

Question 12

Define Prescriptive analytics

Answer 12

Prescribe or recommend actions to be taken based on advanced analytics to reach desired goal

Question 13

Define the statistical concept of Precision

Answer 13

The statistical concept of precision is used to describe the auditor’s evaluation of sampling results by calculating the possible error in either direction

Question 14

What is the primary objective of Probability proportional to sample size (PPS)

Answer 14

designed to estimate overstatement errors - zero balances, negative balance, and understated balances require special design considerations

Question 15

Define audit risk

Answer 15

risk that the auditor may unknowingly fail to appropriately modify the opinion on FS that are materially misstated

Question 16

Define inherent risk

Answer 16

Susceptibility of a financial statement assertion to a material misstatement assuming there are no related controls

Question 17

What is the ultimate purpose of assessing control risk?

Answer 17

To evaluate the risk that material misstatements may exist in the financial statements

Question 18

If control risk is assessed at the maximum level - what should the auditor do?

Answer 18

Document the assessment –> should potentially perform more substantive procedures

Question 19

What is the result of a high Risk of Material misstatement?

Answer 19

RMM = Inherent risk and control risk… RMM increase –> detection risk decreases –> substantive controls increase (might perform confirmations)

Question 20

What is the relationship between control risk and substantive testing?

Answer 20

Direct relationship (i.e control risk decreases -> detection risk increase –> decreases substantive testing)

Question 21

What is the relationship between the Expected population deviation rate and sample size for Test of controls?

Answer 21

Direct relationship (if auditor expects more errors -> increase sample size)

Question 22

What is the relationship between Tolerable rate and samples size in TOC?

Answer 22

inversely (tolerable rate increases –> not as many items need to be selected)

Question 23

What is the advantage of statistical sampling over nonstatistical sampling?

Answer 23

Statistical sampling helps the auditor measure evidence (bc auditor can quantify audit risk

Question 24

What is the risk of assessing control risk too high?

Answer 24

Risk that assessed level of control risk based on the sample is greater than the true risk based on the actual operating effectiveness of control