Chapter 5 - Sampling and Communications Flashcards
Audit Sampling
Objective: obtain sufficient, appropriate audit evidence
Central Limit Theorem
Bell Shaped Curve
Standard Deviation
Measure of variability - how spread out Bell Curve is
Sampling
ONLY are CPA cannot use judgment
Statistical Sampling
Evaluated quantitatively
Non-statistical Sampling
Evaluated judgmentally
Beta Risk
- Risk of incorrect acceptance
- Risk of accessing control risk too low
- NOT EFFECTIVE
Alpha Risk
- Risk of incorrect rejection
- Risk of accessing control risk too high
- NOT EFFICIENT
Variable Sampling
-Substantive Test of Details
Attribute Sampling
- Test of Controls
- Statistical
95% Confidence
1.96 SD
Upper Deviation Rate
What we truly care about
Stratification
Splitting into groups
Probability Proportional to Size (PPS)
Hybrid method - uses attribute theory & variable practice
Material Weakness
Probably will cause a material misstatement
Management’s response re: IC deficiencies
- Done/fixed
- Plan to fix
- Cost/Benefit - will not fix
Benchmarking Automated Controls
If auto control hasn’t changed from prior years, don’t have to do same test, only make sure nothing has changed
Inherent Limitations
IC have limitations, may not work in future, may not correct material misstatements, work only at this moment
Same Date
Audit & IC reports should have same date
If disclaimer…
Still have to report material weakness
Governance
Board of Directors & Audit Committee
Audit Committee
Strongly recommended by SEC & required by NYSE
Audit Committee & Auditor Meeting
Have to meet at least once per year without management
Nontrivial/not fixed misstatements OR as well as corrected if no members of management are on AC
Have to be brought up to Audit Committee
Communication with Governance
Can be in oral or writing. Should include limit of use
Management Rep Letter
Dated same as audit report, final piece of required evidence
