Audit 5 Flashcards
What is the sample error?
The sample error is the difference between the discovered amount during the audit and the recorded amount.
What is the projected misstatement?
The sample error divided by the recorded amount would be the tainting factor, multiplied by the sample interval
In determining the required sample size the auditor usually determines the…
variability in the dollar amounts of inventory items and the risk of incorrect acceptance.
What is attribute sampling used for?
It is used to test internal controls. ex: inspecting employee time cards for proper approval of supervisors is a test of controls.
When would an auditor reduce the planned reliance on a prescribed control?
If the sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate
When do you stratify a population into meaningful groups?
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.
What is the risk of assessing control risk too high?
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.
What is stratification?
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.
The sample size of test of controls varies inversely with…
the tolerable rate. If auditor expects more errors he would increase the sample size.
An auditor incorrectly assesses control risk lower than appropriate…this means that
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
When is PPS used?
Its a method designed to estimate overstatement errors.
-Zero balances, negative balances, and understated balances require special considerations.
What is the risk of accepting control risk too low inversely related to?
the sample size when planning a sample for test of controls.
what is the statistical concept of precision?
Its used to describe the auditors evaluation of sampling results by calculating the possible error in either direction.
What is nonsampling risk?
It includes all aspects of audit risk that are not due to sampling. Which includes selecting inappropriate auditing procedures.
What is to be included in the FS audit of a nonissuer on internal controls?
- 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
A report on significant deficiencies in internal control noted during a FS audit of nonissuer should include..
report should state that the communication is intended solely for the use of management and those charged with governance within the organization.
What should a report on significant deficiencies indicate?
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.
When would a significant deficiency exist? when would a material weakness exist?
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.
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?
They would least likely consider the operating effectiveness of internal controls. This occurs after the planning stage.
what determines sample size for a substantive test?
tolerable misstatement, expected amount of misstatement, and frequency of misstatement.
What is a matter that you need to communicate with those charged with governance?
required to communicate regarding whether management consulted with other auditors.
What should be included as a written representation from management?
The belief that misstatements identified by the auditor and not corrected are immaterial.
what is a role of management in the representation letter?
Management has the responsibility for the design of controls to detect fraud.
What determines your sample size of test of controls?
Expected deviation rate, tolerable deviation rate, and the allowable risk of assessing control risk too low.
what determines sample size for a substantive test?
tolerable misstatement, expected amount of misstatement, and frequency of mistatement.
What is variable sampling used for?
To determine whether a given account balance is reasonable
