Chapter 11 - Evidence and sampling Flashcards
What are the procedures outlined in ISA 500 for obtaining evidence?
- Inspection of documentation
- observation
- Inquiry
- External confirmation
- Recalculation
- Reperformance
- Analytical procedures
What are the 3 main types of computer assisted audit techniques (CAAT)?
- Test data
- Audit software
- Data analytics
How is test data used?
Assurance provider supervises the process of running data through the client’s system
Can dummy data used?
Yes, but assurance provider must be very careful to reverse all effects
Can real data used?
Yes, but data may not contain all the errors necessary to test controls rigorously
What is the safest approach when running dummy data?
Run dummy data against a verified copy of client’s system
What does audit software make use of?
Assurance provider’s own specialised software
On what basis does audit software work?
Basis of interrogating client system and extracting/analysing info
What can audit software do?
- Substantive procedures
- Extract samples
- Check calcs
- Prepare reports
- Anything that doesn’t require a judgement
What are the applications of data analytics?
- Reperforming calcs
- Analysing entire populations
- Matching transactions
- Data comparisons
- Analysing revenue trends
What ISA provides details on the use of analytical procedures?
ISA 520
What does ISA 520 describe?
How the auditor must decide whether using substantive analytical procedures will be effective and efficient at reducing risk
When should analytical procedures be used?
At risk assessment stage
For any item directionally tested, what are the 2 possible results?
Fairly stated or misstated
What figures are estimated?
- Product warranties
- Depreciation
- Inventory
- Receivables allowances
What is the audit approach set out in?
ISA 540
What are the different methods to the audit approach?
- Test process already used
- Point estimate
- Review events
- Test controls
What does ISA 530 state about audit sampling?
Must provide a reasonable basis for auditor to draw conclusions
What is audit sampling?
Application of audit procedures to less than 100% of items in population
What is statistical sampling?
Random selection and the use of probability to evaluate sample results
What is non-statistical sampling?
Any approach that doesn’t qualify as statistical
What specific characteristics may auditors look for when using selective sampling?
- High value/key items
- Items over a certain amount
- Items that provide info
What does ISA 530 state about audit sampling?
When designing an audit sample, auditor must consider specific purpose to achieve
When is tolerable misstatement considered?
During the planning stage and is related to the auditor’s judgement about materiality
When is sequence/block selection used?
To check item characteristics
What is Money Unit Sampling?
MUS ensures that every £1 in a population has an equal chance of being selected for testing
What must the auditor do with misstatements?
Project them from the sample onto the relevant population
What does ISA 450 require from an auditor?
Evaluate the effect of identified misstatements on the audit
What can the auditor request from management if misstatements aren’t corrected?
Written representation from management to prove misstatements are immaterial
How is the cost of inventory confirmed?
Inspection of purchase invoice
What gives better evidence, inquiry of 3rd party or entity insiders?
3rd party
How must the auditor’s report be signed when working remotely?
May be signed electronically and published online
