Audit 5

Question 1

What is the sample error?

Answer 1

The sample error is the difference between the discovered amount during the audit and the recorded amount.

Question 2

What is the projected misstatement?

Answer 2

The sample error divided by the recorded amount would be the tainting factor, multiplied by the sample interval

Question 3

In determining the required sample size the auditor usually determines the…

Answer 3

variability in the dollar amounts of inventory items and the risk of incorrect acceptance.

Question 4

What is attribute sampling used for?

Answer 4

It is used to test internal controls. ex: inspecting employee time cards for proper approval of supervisors is a test of controls.

Question 5

When would an auditor reduce the planned reliance on a prescribed control?

Answer 5

If the sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate

Question 6

When do you stratify a population into meaningful groups?

Answer 6

if the auditor wants to reduce the required sample size by separating items subject to sampling into relatively homogenous groups on the basis of some characteristic related to the specific audit objective.

Question 7

What is the risk of assessing control risk too high?

Answer 7

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

Question 8

What is stratification?

Answer 8

It involves the grouping of transactions sharing some characteristic (such as recorded amounts). The goal is to ensure selection of items for potential misstatements may individually equal or exceed tolerable misstatement.

Question 9

The sample size of test of controls varies inversely with…

Answer 9

the tolerable rate. If auditor expects more errors he would increase the sample size.

Question 10

An auditor incorrectly assesses control risk lower than appropriate…this means that

Answer 10

the deviation rate in the auditor’s sample is less than the tolerable rate, but the deviation rate in the population exceeds the tolerable rate

Question 11

When is PPS used?

Answer 11

Its a method designed to estimate overstatement errors.

-Zero balances, negative balances, and understated balances require special considerations.

Question 12

What is the risk of accepting control risk too low inversely related to?

Answer 12

the sample size when planning a sample for test of controls.

Question 13

what is the statistical concept of precision?

Answer 13

Its used to describe the auditors evaluation of sampling results by calculating the possible error in either direction.

Question 14

What is nonsampling risk?

Answer 14

It includes all aspects of audit risk that are not due to sampling. Which includes selecting inappropriate auditing procedures.

Question 15

What is to be included in the FS audit of a nonissuer on internal controls?

Answer 15

• The report should indicate the purpose of the audit was to report on the FS and not provide an opinion on IC
• Include the definition of material weakness
• Include restriction

Question 16

A report on significant deficiencies in internal control noted during a FS audit of nonissuer should include..

Answer 16

report should state that the communication is intended solely for the use of management and those charged with governance within the organization.

Question 17

What should a report on significant deficiencies indicate?

Answer 17

the report issued should indicate that the purpose of the audit was to report on the financial statements and not to provide assurance on internal controls.

Question 18

When would a significant deficiency exist? when would a material weakness exist?

Answer 18

Significant deficiency is when there is a weakness that is important enough to merit the attention of those responsible for financial reporting, and a material weakness exists when there is a reasonable possibility of material misstatement.

Question 19

When planning an engagement to examine the effectiveness of the entity’s internal control in an integrated audit of a nonissuer, wheat would the practitioner least likely consider?

Answer 19

They would least likely consider the operating effectiveness of internal controls. This occurs after the planning stage.

Question 20

what determines sample size for a substantive test?

Answer 20

tolerable misstatement, expected amount of misstatement, and frequency of misstatement.

Question 21

What is a matter that you need to communicate with those charged with governance?

Answer 21

required to communicate regarding whether management consulted with other auditors.

Question 22

What should be included as a written representation from management?

Answer 22

The belief that misstatements identified by the auditor and not corrected are immaterial.

Question 23

what is a role of management in the representation letter?

Answer 23

Management has the responsibility for the design of controls to detect fraud.

Question 24

What determines your sample size of test of controls?

Answer 24

Expected deviation rate, tolerable deviation rate, and the allowable risk of assessing control risk too low.

Question 25

what determines sample size for a substantive test?

Answer 25

tolerable misstatement, expected amount of misstatement, and frequency of mistatement.

Question 26

What is variable sampling used for?

Answer 26

To determine whether a given account balance is reasonable