Chapter 11 Evidence and sampling Flashcards
What is the audit approach in obtaining evidence?
- choose balance of test of controls and substantive testing
- general approach
- management representations
- use general approach for account balances
What are the substantive procedures?
- Inspection of assets or docs
- Observation
- Inquiry
- Confirmation
- Recalculation
- Reperformance
- Analytical procedures
How is the Computer assisted audit techniques (CAAT) different to testing data (TD) manually in getting evidence and sampling?
- Description
TD: auditor data put in client system; Data is real or dummy
CAAT: client data in auditors system - Use
TD: test controls
CAAT: basic analysis/substantive testing - Examples
TD: Enters data e.g timesheet hours; valid purchase invoice
CAAT: reperformance of addition or transa.; cals of ratios; prep of reports
How is the audit data analysed for evidence and sampling?
- managing big data; trends; pattterns
- matching purchase order; GRN
- using sensitive analysis to test assumptions
- analysisng revenue trends by product
What is the process of analysing data?
- understand business
- develop expectation
- compare to actuals
- unexpected var. = risk
What does the ISA 520 tell about evidence and analytical procedures?
Can be used as substantive procedure still depend on: 1) comparibility 2) reliability 3) disaggregation of data 4) dept of auditor knowledge
What are the two stages of determining the evidence and sampling?
- planning stage: identify risk
- evidence stage: unexpected var. are acceptable? if not make enquiry
Give two examples of analytical procedures you might carry out to get
evidence as to the accuracy of the current year payroll expense in the profit
and loss accoun
1) Compare this year’s and last year’s figure taking account of starters and
leavers and pay rises in the year.
(2) Comparing payroll with other related figures in the financial statements, e.g.
number of employees, turnover, and profit.
What are the tests for an overstatement in finding evidence?
1) Fstat
2) Balance vs NCA
3) test sample from NCA
4) Test for existence i.e purchase invoice
i.e Figure in accounts > Intermediate doc > supp evidence
What are the tests for an understatement in finding the evidence?
- test asset used by client
- Check vs NCA for completeness
i.e. reciprocal popu > supp evide > intermediate doc > figure in Acc.
Which account for estimates are audited by the ISA 540
- Depreciation
- Allowance for receivables
- Provisions
What are the audit procedures for accounting estimates?
- review and test for estimate
- indpt. expert make est. vs company figure
- confirm accuracy of est.
- test management est.
What does the ISA 530 tell about the auditor using sampling
provide reasnoable basis to draw conclusion
what is the process of sampling testing?
1) Identify popu
2) Identify sample unit
3) select sample
4) Identify errors
5) Draw conclusion
What is meant by the population in in evidence and sampling?
the revenue and receivables
What is meant by sampling units?
Sales invoices or single receivables balance
What are the methods in statistical sampling?
Random selection: equal chance in popu
Systematic selection: random start and then constant interval
Money unit sampling (MUS): every £1 equal chance
What are the non-statistical sampling methods?
Haphazard selection: auditor choose one as representative
sequence or block selection: i.e 50 consecutive cheques (test control)
Should you increase, decrease or no effect on the following cases to consider sample size?
Increase in the auditor’s assessment of the risk of material
misstatement
Increase in the desired level of assurance (may need less
assurance if other, corroborating procedures are being carried
out)
Increase in the tolerable misstatement (linked to materiality)
Increase in the expected error (linked to risk)
Stratification* of the population Decrease
Increase in the number of sampling units in the population
IC IC DC DC negligible effect
What type of conclusion can be drawn once the auditor tested samples
- nature of error identified (misstatement or missposting)
- cause of error (common error?)
- impact on other parts of audit (may influence other accounts and Internal control)
- probable misstatement in pop (results should be extrapolated)
What does the ISA 450 state of any uncorrected misstatements?
needs to evaluate effect
What should auditor do if management does nothing about the misstatement?
- understand why?
- if misstatement material
- check with governance to get it corrected
Which factors are considered if they are not material in size for evaluation of misstatement by law?
- compliance with laws
- compliance with debt convenants
- ratios used to evaluate financial position
