A3 Sample, Analytical procedures and Assertions Flashcards
In a sampling procedure on test of controls, an auditor incorrectly assesses control risk to high this was due to
The deviation rate (upper deviation + allowances) exceeded tolerable rate but deviation rate in the population was less than the tolerable rate.
In test of controls auditor control risk was higher than necessary and there by increase substantive testing. this is illustrated by
deviation rate exceeded tolerable rate but the truth is deviation rate (which means deviation in the population was less than tolerable rate) was less than the tolerable rate. incorrect in the rejection.
In a auditor sample plan to determine whether large expenses are being properly approved. auditor will accept a 2% risk of assessing control too low, and a tolerable rate of 5%. Sample 100 and found one lacking approval and one selected that can not be found.
what is auditors situation
He does not have enough information given to determine whether the should rely on this control due th result of sampling. the deviation ( upper deviatio + allowances) does not compare to tolerance rate.
What is true about sampling risk for nonissurers
non sampling risk can rise because an auditor failed to recognized misstatements. non sampling can not be measured. auditor failed in the selection.
sampling arises from the possibility that when substantive test is restricted to sample, conclusions mights different that if test each item in the population.
if auditor test controls are too low this is
this is incorrect in the acceptance: the auditor deviation ( upper deviation + allowance) rate was less than the tolerable rate (this mean the devation popoluatio was more than the tolerable rate)
Because the true deviation rate exceeded the tolerable rate.
If an auditor test count observe in inventory. The auditor trace the count (source document) to the inventory list. the procedure is
Completeness: trace source document to the inventroy list. Trace up
Vouch back = existence = inventory list and vouch to the source document.
When an auditor assessed control risk too low and decreasd substantive test he did what
This is incorrect in the acceptance; deviation rate less than the tolerable rate. which meant the deviation population more than thethe tolerable rate.
Statistical sampling in test of controls is
A deviation from a specific control activity (because the auditor can’t sample everything) at a give rate (deviation rate) result in a misstatement at a lower rate (incorrect on acceptance)/
so deviation from controls do not necessary result in misstatement. deviation with pertinent (specific) control activities could ordinally e expected to result in misstatement at a lower rate.
Detection is irrelevant.
Auditor is testing 10,000 credit approval on slaes invoices during the current audit. auditor design statistical sample that would provide 1% risk of assess control risk (995 confidence) that no more than 7% (tolerable rate) of sales lack approval. Remember prior info is distractor.
Audit sampled 200 invoices a found 7 lacked approval.
auditor upper deviation was 8%
auditor decided to increase preliminary controls due to
tolerable rate 7% (max rate auditor of deviation that auditor will accpept before altering plann reliance) was lower than upper deviation rate of 8%.
when reviewing analytical procedures from an effectiveness and efficiency perspective compared to test of details. Analytical procedures will based on
Nature of the assertion
plausibility and predictability of data relationship
availability and reliability of data to develop the reasonable expectation and the precision of the expectation.
When applying analytical procedures,what is the best approach for developing expectation
identify reasonable explanation for unexpected differences before talking to client management. Managment explanation should corrobborate with yours.
What is true about analytical procedures and substantive test
analytical procedures are not required to be used for substantive testing and are more likely to be used for accounts that are predictable.
When an audit interview and verify he is doing what procedures
inquiring and inspecting records.
Who should perform analytical procedures in the final stages
audit manager or partner who has a comprehensive knowledge of clients business and industry.
what is the objective of test of details of transactions performed as substantive tests
Substantive test are concern with $ amounts and Tests of details are used by auditors to collect evidence that the balances, disclosures, and underlying transactions associated with a client’s financial statements are misstated or correct.