Chapter 5 - Sampling and Communications

Question 1

Audit Sampling

Answer 1

Objective: obtain sufficient, appropriate audit evidence

Question 2

Central Limit Theorem

Answer 2

Bell Shaped Curve

Question 3

Standard Deviation

Answer 3

Measure of variability - how spread out Bell Curve is

Question 4

Sampling

Answer 4

ONLY are CPA cannot use judgment

Question 5

Statistical Sampling

Answer 5

Evaluated quantitatively

Question 6

Non-statistical Sampling

Answer 6

Evaluated judgmentally

Question 7

Beta Risk

Answer 7

• Risk of incorrect acceptance
• Risk of accessing control risk too low
• NOT EFFECTIVE

Question 8

Alpha Risk

Answer 8

• Risk of incorrect rejection
• Risk of accessing control risk too high
• NOT EFFICIENT

Question 9

Variable Sampling

Answer 9

-Substantive Test of Details

Question 10

Attribute Sampling

Answer 10

• Test of Controls

- Statistical

Question 11

95% Confidence

Answer 11

1.96 SD

Question 12

Upper Deviation Rate

Answer 12

What we truly care about

Question 13

Stratification

Answer 13

Splitting into groups

Question 14

Probability Proportional to Size (PPS)

Answer 14

Hybrid method - uses attribute theory & variable practice

Question 15

Material Weakness

Answer 15

Probably will cause a material misstatement

Question 16

Management’s response re: IC deficiencies

Answer 16

• Done/fixed
• Plan to fix
• Cost/Benefit - will not fix

Question 17

Benchmarking Automated Controls

Answer 17

If auto control hasn’t changed from prior years, don’t have to do same test, only make sure nothing has changed

Question 18

Inherent Limitations

Answer 18

IC have limitations, may not work in future, may not correct material misstatements, work only at this moment

Question 19

Same Date

Answer 19

Audit & IC reports should have same date

Question 20

If disclaimer…

Answer 20

Still have to report material weakness

Question 21

Governance

Answer 21

Board of Directors & Audit Committee

Question 22

Audit Committee

Answer 22

Strongly recommended by SEC & required by NYSE

Question 23

Audit Committee & Auditor Meeting

Answer 23

Have to meet at least once per year without management

Question 24

Nontrivial/not fixed misstatements OR as well as corrected if no members of management are on AC

Answer 24

Have to be brought up to Audit Committee

Question 25

Communication with Governance

Answer 25

Can be in oral or writing. Should include limit of use

Question 26

Management Rep Letter

Answer 26

Dated same as audit report, final piece of required evidence