A3 - Risk, Evidence and Sampling

Question 1

List AP for Completeness assertion.

Answer 1

Tracing
Analytical Review
Observation

Question 2

List AP for Cutoff assertion.

Answer 2

Cutoff procedures

Question 3

List AP for Valuation, Allocation, and Accuracy assertion.

Answer 3

Inspection
Footing
Independent recalculation
Reconciliation

Question 4

List AP for Existence and Occurrence assertion.

Answer 4

Confirmation
Observation
Inspection
Examination
Vouching

Question 5

List AP for Rights and Obligations assertion.

Answer 5

Inspection

Question 6

List AP for Understandability of Presentation and Classification assertion.

Answer 6

Inspection
Review
Inquiry of Management

Question 7

Substantive Approach

Answer 7

An audit approach in which only substantive will be performed, either because controls are nonexistence or because it would be inefficient to test controls.

Question 8

Substantive Procedures

Answer 8

Test of details of transactions and balances and analytical review procedures designed to substantiate the account balances shown in the financial statements.

Question 9

List the standard audit procedures?

Answer 9

Confirmation

Footing, Cross-Footing, and Reconciliation
Inquiry
Vouching
Examination/Inspection

Cutoff Review
Analytical Procedures
Reperformance
Reconciliation
Observation
Tracing

Walk-through
Auditing Related Accounts Simultaneously
Representation Letter
Subsequent Events Review

Question 10

Audit evidence hierarchy

Answer 10

Auditor knows
External evidence
Internal evidence
Oral evidence
U - Know it!

Question 11

Define Sample Risk

Answer 11

The risk that the sample is not representative of the population and that the auditor’s conclusion will be different from the conclusion had the auditor examined 100 percent of the population.

Question 12

Does statistical sampling eliminate the need for auditing judgement?

Answer 12

NO!

Question 13

Types of statistical sampling.

Answer 13

Attribute sampling (TOC) and Variable sampling ($ubstantive testing)

Question 14

Attribute sampling is

Answer 14

testing for specific characteristics (seeking errors) IC (test internal controls). Deals with yes-or-no questions.

Question 15

Variable sampling is

Answer 15

estimating the dollar value of the population ($ubstantive testing).

Question 16

Sampling Risks in $ubstantive Testing (Variable)

Answer 16

Risk of Incorrect Acceptance - sample supports no mm when there is (Beta risk).

Risk of Incorrect Rejection - sample supports mm conclusion when it’s not (Alpha risk).

Question 17

Sampling Risk in Test of Controls (Attribute)

Answer 17

Risk of Assessing CR to low - assess CR too low when its higher (Beta, Auditor worse fear).

Risk of Assessing CR to high - assess CR too high when should be lower (Alpha/Not efficient).

Question 18

Tolerable deviation rate

Answer 18

maximum rate of deviation from prescribed procedure the auditor will tolerate without modifying the planned reliance on internal control.

Question 19

How is sample size determined?

Answer 19

In both stat and nonstat sampling, sample size is determined based on sampling risk that the auditor is willing to accept based on their professional judgement.

Question 20

Mean-per-Unit Estimation

Answer 20

a sampling plan that uses the average value of the items in the sample to estimate the true population.

Question 21

Ratio Estimation

Answer 21

a sampling plan that uses the ratio of the audited (correct) values of items to their book values to project the true population value.