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Auditing > Audit 5 > Flashcards

Audit 5 Flashcards

1
Q

Central limit theorem of sampling

A

That the population is normally distributed, like a bell curve

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2
Q

Sampling Risk is

A

the risk that the sample is not representative of the population

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3
Q

Trick questions on CPA exam involving statistical sampling

A

Try to trick you into thinking that stat sampling eliminates auditing judgement

It does not

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4
Q

How do samples need to be chosen?

A

Randomly

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5
Q

Name Types of Sampling and what they do?

A

Attribute Sampling= tests for internal controls, (yes or no questions)

Variables Sampling= Substantive tests of account balances

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6
Q

Sampling Beta risk is

A

Risk of incorrect acceptance ,

Picked too many good samples and not enough bad

Ineffective

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7
Q

Sampling Alpha Risk is

A

Risk of Incorrect Rejection

Picked too many bad samples and not enough good

Inefficient- will do more work than necessary

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8
Q

Sample Deviation Rate is

A

number of missing items found in sample size

1 out of 100 items is 1%

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9
Q

Allowance for Sampling Risk equation is…

A

Upper Deviation Rate
minus
Sample Deviation Rate

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10
Q

Equation for Upper Deviation Rate is

A

Sample Deviation
plus
Allowance for Sampling Risk

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11
Q

Discovery Sampling is used for..

A

detecting fraud/critical items

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12
Q

Probability to Proportion Sampling is…

A

individual dollars are used for selection and then everything from that account is selected

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13
Q

Advantages and Disadvantages of PPS

A

Advantage

Emphasizes larger balance

Smaller Samples

Disadvantages

doesnt work well with zero, negative or understated balances

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14
Q

Control deficiency is

A

when internal controls fail to prevent or detect and correct (omit correct for issuers)

misstatements on a timely basis

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15
Q

Material weakness is a ..

A

internal control deficiency that a has a reasonable possibility that material misstatement of fin stmt will not be prevented or detected and corrected (omit corrected for issuers)

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16
Q

How to communicate Significant and Material Deficiencies?

A

Significant and Material deficiencies must be communicated in writing to both mgmt and governance in a timely manner

17
Q

Significant deficiencies are

A

less severe than material weakness yet important enough to merit attention by those charged with goverance

18
Q

Other deficiencies can be communicated how?

A

Written or Orally

ONLY to Mgmt

19
Q

What is mgmt’s response to internal control problems?

A

IC problem

Fixed
Plan to Fix
Cost/Benefit not fixing

20
Q

Inherent Limitations Paragraph of Internal Controls says what..

A

May not prevent or detect and correct misstatements

21
Q

If separate reports for audit opinion and opinion on internal controls what needs to go in both?

A

Reference to the other report

22
Q

A Material weakness in internal control requires what sort of opinion?

A

Adverse

23
Q

Failure to obtain a representation letter is what…

A

Scope limitation

24
Q

A Smaller tolerable misstatement results in what change to sample size..

A

Increases it

25
Q

A Higher risk of incorrect acceptance changes sample size how..

A

decreases it

26
Q

What does a smaller amount of variability do to sample size?

A

Decreases sample size

27
Q

Sample Size is determined by

A

Expected or likely rate of deviation

Allowable risk of assessing control risk too low

Tolerable Rate of deviation

28
Q

Ratio estimation is used when

A

audit amounts are approximatley proportional to book amounts

29
Q

An estimate of numerical measurement of population would use what sampling method

A

Variables Sampling

30
Q

When to express an effectiveness of internal control?

A

Need to for issuers

Not for Non Issuers

31
Q

Variable sampling Mean per unit point of estimate formula

A

(Auditor true value/sample size)x population size

32
Q

Variable sampling ratio point of estimate

A

(TVsample/BVsample)x Total book value

33
Q

variable sampling -difference estimation

A

((BVsample-AVsample)/sample size)x population= projected error

POE= TBV -projected error

34
Q

Content of Mgmt representation letter

A
  1. mgmt responsible for fair presentation of the FS and DIM of IC
  2. Completeness of info
  3. Fraud
  4. laws and regs
  5. uncorrected misstatements
  6. litigations and claims
  7. Estimates reasonable
  8. related party transactions- disclosed who they are
  9. subsequent event
  10. additional representations

Auditing (9 decks)

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