III. Performing Further Procedures and Obtaining Evidence (30–40%) Flashcards
What kind of information is included in a management representation letter?
It covers all information referenced in the attestation report including representation that there were no subsequent events that would require disclosure or adjustment.
Would there be any need to note retention periods of data availability in a management rep letter?
No. If the client record retention period meets legal requirements, there is no need to address record retention in the management rep letter.
What is depreciable base in the context of real property?
It is the original cost of the asset less the salvage value of the asset.
On what document can the auditor find the depreciable base for a real property?
From an invoice or a closing statement. The closing statement is a document that has all the transaction details.
Will the cost of real property be available on a bank confirmation document?
No because banks rarely provide a loan for the full price of a real property. So the total value of the real property will be in a closing statement that has all the transaction details of the purchase, not on the mortgage loan documents.
What does the auditor consider when determining the appropriate attribute sample size?
Tolerable deviation rate - how often a control can be violated and still allow the auditor to trust that the controls are working
Expected population deviation rate - how often the auditor believes the control was not followed
Acceptable risk of overreliance - risk that the auditor incorrectly relied on the control
What is tolerable misstatement?
This is for sample size in variable sampling not attribute sampling.
What is economic order quantity (EOQ)?
It is a formula that calculates how much inventory to order based on usage, storage costs, etc. EOQ provides information to control costs, not inventory counts.
When reviewing management assertions, what does tracing tell the auditor?
Tracing goes from the supporting documents or evidence to the accounting records. This tests for completeness. Like a detective, I am following the trail. Did the stuff that is in the source documents make it to the f/s? I am just checking to make sure nothing is missing (completeness)
When reviewing management assertions, what does vouching tell the auditor?
Vouching goes from the accounting records to the supporting documents to test for existence of occurrence. Like a journalist, I am just checking the facts. Did the stuff published in the F/S actually happen? I am checking that stuff occurred and is in existence.
When sampling, if you have amounts that are overstated and/or understated, what do you do with those amounts to understand the relationship with book amounts?
The over and understatements are added to determine the gross sample to book difference. Because that tells me the projected misstatement to apply to 100% of the population.
What is the significance of significant deficiencies and material weaknesses in relation to the risk of misstatements?
Material weaknesses present the greatest risk of misstatement. Multiple significant deficiencies may combine to create a material weakness contributing to a risk of misstatement.
Is there an inverse or a direct relationship between the expected population deviation rate and the sample rate in sampling a test of controls?
It is a direct relationship in the case of test of controls.
How to calculate sampling interval in probability-proportional-to-size sampling (PPS)?
PPS Sampling interval = Dollars/sampling size
What is a unique characteristic of PPS sampling?
The auditor can directly control the risk of incorrect acceptance because the auditor has to specify the desired risk level.
What does the audit report date indicate?
That the auditor is taking responsibility for the for all events through the audit report date.
