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.
the objective of test of detail is to detect overstatement of sales, the auditor would trace
Trace for existance vouch back list or ledger or accounting records to source document
Co. has cash of $200K, a current ratio of 1.5:1 and a quick ratio of .5:1. On 12/31/yr3 all cash was used to reduce ap. how did this impact the ratios
for Current ratio it would increase . because CA the numerator was higher than CL the denominator. so I decrease in CL would increase Current ratio
Quick ratio would decrease> due to liquid cash on the numerator was less than Cl the denominator. So a decrease in cash would be from numerator would decrease the ratio.
Which of the following analytical procedures would most likely indicate a possible unrecorded liab.
Current ratio decrease from following year? No . ap was higher in current year hence all recorded liab.
AP increase greater than 10% over prior pd. NO increase increased
AP turnaover of 5 compared to 10 previous. No this mean paying AP faster than previous years.
AP as a % of total liab of 25% compared to last year 35%. yes. the difference could be unrecorded liab.
Would Average inventory be the most likely ratio that a enagement partner would review in the final stage of the audit
yes. this would indicate how fast inventory is being sold = profit or loss margins and net income or loss and earnings.
what is net sales when:
net cash sales are $3000
Beg a/r = $20,000
Ending a/r = $22,000
Year 4 Ap turn over = 5
Beg a/r = $20,000+ Ending a/r = $22,000 = 42,000/2= 21000*5 a/r turnover = $105,000 net sales.
What does probability proportional sampling aka dollar uit sampling
It show the aduditor risk of incorrect acceptance ( control was low from auditor) by specifying that risk level for the sampling plan.
what factors ae considered in determining sample size
expected deviation rate by auditor and the tolerate rate
what is considered in the analytical procedures in the final stages
evaluating f/s presentation
evaluating going concern assessment
assessing conclusion reached.
what is in the planning statge
understanding business.
2-16-20 study sampling mcq new- if an auditor concludes that there is a high risk of material $$$ misstatement he would
high risk of material mistatement = larger sample size should be used,
High risk RMM = accepted level of detection risk decrease . so the select more effective substantive test because more $$ at risk
If low risk - small sample size
smal risk = detection increase = select less substance test
auditor plans to examine l-t debt most likely would include steps that require
examine is an existence procedure using 1/2 analytic procedure
Correlate interest exp (i/s) recorded to periods of outstanding debt (b/s)
would not confirm with existence.
what would a decrease the acceptable level of risk do to sample
Decrease the acceptable level of risk will result in a larger sample size, which the auditor may not want to do unless it is cost effort of selecting additional sample is low.
It would not increase reliabilty of sample.
what would be a analytical procedure used in the planning stage
comparing t current year sales to prior years sales this would give auditior information regarding changes n clients business.
would not review f/s and nots for adequate evidence.
2/25/19; when testing controls,what effect does population size have on sample size
It has little effect. Populationsize is not an issue in determining a sample size as long as the population is relatively large (greater than 5000 items)
when an auditor is using statistical sampling for attributes in test of control (or internal control) when should planned reliance be reduce on the control
when the the upper deviaton ( deviation + allowance ) exceeds tolerable rates. to much upper deviation for tolerable.
Stuff that is not true: sample rate deviation is less than expected rate of deviation…. not relevant
if upper deviation is equal tolerable than auditor may still place the planned amount of reliance of control
if tolerable rate is less the allowance sampling exceed sample rate than upper deviation is less than tolerable. no reduction is needed.
what type of sampling allows an auditor to quantify sampling
Haphazard sampling; no the is nonstat. this could be where an auditor has no consious effect to put together data
Stratified nonstatistical = no this is nn stat and no item will be selected
Block: no. this non stat; data is clustered together does not allow quantify sampling
where as Attribute: this is statistical sampling that is used to test control. it involves statistical sample selection.
in the facilatation of analytical procedures how are most likely complete
when entity uses standard cost system with variance report because of comparisons of actual to budget, where managment is aware of significant variations.
soley data with is not a good analytical procedure tool.
how are analytical procedures used the with equity methor comparison
look for errors in recording amortization of the excess of investor’s cost over investment underlying book value. equity method does not use trading sec. or avil for sale so not earning are impacted.
what is true on the documenting of analytical procedures requirments
when using analytical procedures as substantial procedures auditor must document the expection of f/s testing and consider factors developing expectation.
What procedures are necessary in a financial statement audit
analytical procedures for plananing and the overall stage of the audit
Risk assessment; to assess the RMM and to determine to what exent further audit procedures are necessary.
would only used test of operating effective of controls when risk assess in the planning assumption is based on controls are operating effective or when sustantive testing alone are insufficient.
A test of controls is an audit procedure to test the effectiveness of a control used by a client entity to prevent or detect material misstatements. … However, if the test reveals that controls are weak, the auditors will enhance their use of substantive testing, which usually increases the cost of an audit.
which tyoe of audit procedure wold an audit used to test clients finacial statement assertions at the account $, transaction $, and disclosure level
when planning a sample for a subsequent cash reciept test an auditor should
planning = preliminary
do preliminary judgement about materiality level
risk assess controls to low and = test of control and is not in planning but after.
cash receipt test is a substantive test.
2854- in a pps sample with a sampling interval o f$10,000, an auditor discovered that a selected a/r with a recorded amount of $5,000 had an audited amount of $4,000. If this were the only misstatement discovered by the audior, the projected misstatement of this sample would be
Step 1 get the sample error = recorded amt $5,000-audited amount of $4,000 = $1,000.
Step 2 get the tainted factor % = sample error $1,000/recorded amt $5,000 = 20%
Step 3 get the projected misstatement = Sample interval $10,000*tainted factor % = 20% = $2,000
- if population variability increase, does sample size increase
yes. population variability has a direct relationship to sample size
