Chapter 6: Sampling and Risk Response

Question 1

Audit Sampling

Answer 1

is required whenever the auditor does not test an entire group of transactions or all items in a balance. Sample of items should be representative of the population.

Question 2

Sampling Risk

Answer 2

is the risk that the sample chosen by the auditor is not representative of the population available for testing, and causes the auditor to arrive at an inappropriate conclusion.

Question 3

What are the two consequences of sampling risk?

Answer 3

• Risk that audit will be ineffective
• Risk that audit will be inefficient

Question 4

What are the five sampling techniques?

Answer 4

• Random Selection
• Systematic Selection
  -Haphazard Selection
  -Block Selection
• Judgemental Selection

Question 5

Tests of Controls (Control Testing)

Answer 5

the audit procedures designed to evaluate the operating effectiveness of controls in preventing/detecting/correcting material misstatement.

Question 6

Substantive Procedures

Answer 6

audit procedures that involve intensive testing of year-end account balances and transactions form throughout the year.

Question 7

Audit Strategy

Answer 7

audit strategy is developed after gaining an understanding of the client’s business (inherent risk) and its internal controls (control risk). Therefore, relative emphasis on (1) test of controls and (2) substantive procedures depends on client’s audit risk.

Question 8

What do control testing procedures include?

Answer 8

• Inspection of documents for evidence of authorization.
• Inspection of documents for evidence that details included have been checked by appropriate client personnel.
• Re-performing control procedures to test their effectiveness.

Question 9

What are the three types of substantive procedures?

Answer 9

• Substantive tests of transactions
• Substantive tests of balances
• Analytical procedures