Evidence and sampling Flashcards
What type of substantive procedures are set out by ISA 500?
- Inspection of assets or documents
- Observation
- Inquiry
- Confirmation
- Recalculation
- Reperformance
- Analytical procedures
What are the two traditional categories of computer-assisted audit techniques?
- Test data
2. Audit software
Describe test data
Auditor data is put into the client’s system. The data can be real or dummy the system can be live or a copy.
Describe audit software
Client’s data is put into the auditor’s system
When is test data used?
To test the controls in the system
When is audit software used?
For basic data analysis and substantive testing
What is the process of performing analytical procedures?
- Understand the business
- Develop an expectation
- Compare actual to expectation
- Unexpected variations = risk
What does ISA 520 state?
That the auditor can use analytical procedures as a form of substantive procedure
What are analytical procedures as a form of substantive procedure dependent on?
- Strength/comparability of relationships
- Reliability of the data being used in the analysis
- The level of disaggregation of the data available
- The depth of the auditor’s knowledge of the client
What is the direction of testing for overstatement?
- Figure in accounts
- Intermediate documentation
- Supporting evidence
What is the direction of testing for understatement?
- Reciprocal population
- Supporting evidence
- Intermediate documentation
- Figure in the accounts
What does ISA 540 set out?
The audit approach for estimates
Why are estimates high risk?
They are subjective in nature and they have a higher risk of management basis
What are the most common procedures for an accounting estimate?
- Review and test the process used by management to develop the estimate
- Use an independent expert to make an estimate for comparison with the company’s figure
- Review subsequent events for confirmation of the accuracy of the deadline
- Test the operating effectiveness of the controls over how management made the estimate
According to ISA 530, what is the objective of the auditor when using sampling?
To provide a reasonable basis for the auditor to draw conclusions about the population from which the sample is selected
What is the sampling process?
- Identify population
- Identify sampling unit
- Select sample
- Identify errors
- Draw conclusions
Define population
The entire set of data from which a sample is selected
Define sampling units
The individual items constituting a population
According to ISA 530, how should an auditor select items for sampling?
In such a way that each sampling unit in the population has a chance of selection
Is random selection sampling statistical or non-statistical?
Statistical
Is random systematic selection sampling statistical or non-statistical?
Statistical
Is money unit sampling statistical or non-statistical?
Statistical
Is haphazard selection sampling statistical or non-statistical?
Non-statistical
Is sequence selection sampling statistical or non-statistical?
Non-statistical
Is block selection sampling statistical or non-statistical?
Non-statistical
According to ISA 530, which factors influence sample sizes?
- Increase in the desired level of assurance
- Increase in the expected error
- Stratification of the population
- Increase in the number of sampling units in the population
- Increase in the auditor’s assessment of the risk of material misstatement
- Increase in the tolerable misstatement
If management refuses to correct misstatements, what should the auditor do?
- Obtain an understanding of the reasons of refusal
- Determine whether the misstatements are material
- Communicate the uncorrected misstatements to those charged with governance and request they be corrected, explaining that the audit report will be modified if material misstatements are not corrected
Which matters are material by nature rather than size?
- Misstatements that affect compliance with laws and regulations
- Misstatements that affect compliance with debt covenants
- Misstatements that affect ratios used to evaluate financial position, results, or cash flows
- Misstatements that increase management compensation
