Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

ACCT 425 > Lec 14 Q3 > Flashcards

Lec 14 Q3 Flashcards

1
Q

what is the definition of audit sampling

A

application of audit procedure to less than 100% of the items within an account balance population

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

what is the purpose of sampling

A

to evaluate characteristics of the sample and project it onto the population

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

N, E and T are aspects of audit procedure - what are they are what do they stand for

A

nature - the techniques used
extent - the amount of tests done
timing - point in audit in which the procedures are to be performed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

for internal controls doe you sample from accounts or classes of trans

A

classes of transactions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

is sampling for IC really sampling?

A

not really because you take 2-3 I/C procedure and do a walkthrough

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

what is attribute sampling

A

looking at the documents of physical units such as sales documents

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

what sort of sampling is the effectiveness of control procedures based on

A

attribute sampling

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

when you sample for substantive testing, do you sample class or accounts

A

accounts, more specifically A or L

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

what is sampling risk

A

the risk that a conclusion drawn from sample is different from the actual characteristics of the sample

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

what types of sampling does a balance/substantive audit use

A

variable sampling and attribute sampling of monetary units

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

assuming all else if fine, what might cause sample risk

A

sample that is chosen is wrong

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

can sample risk ever be 0

A

no, it can never be 0 unless the entire population is is tested

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

what are the two types of audit sampling

A

statistical and non-statistical

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

what is statistical sampling

A

the use of probability to select and evaluate the results of a sample

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

what are two features of statistical sampling

A
  • risks can be quantified through a formula
  • they are more expensive to and require use of CATs
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

what is non-statistical sampling

A

sampling based on professional judgement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

can sr be evaluated in non-stat

A

no, there is no formula to evaluate samp risk in non-stat

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

when should you use non-statistical sample

A

when you have good professional judgement and knowledge of the industry and business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

which is cheaper, stat or non-stat

A

non-stat thus it is used to balance the cost between the two sampling methods

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

can both stat and non-stat be used for evidence and cas?

A

yes, both can provide sufficient appropriate evidence and both are allowed by cas, individually or in combination

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

when should you use non-statistical

A
  • when there is a small population (costly and inconvenient to do statistical)
  • high percentage of the population are individual accounts with high value and risk items
  • accounts’ records for entire population are difficult to access
  • records are maintained manually
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

what are the three non-statistical sampling methods

A

haphazard method, block/cluster sampling, significant transactions sampling

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

what is the haphazard method of non-s sampling and give an example

A

items selected manually to draw a representative sample.
e.g. pick documents randomly from a box

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

what i/c objective does this haphazard method test

A

objective of validity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

what is the block/cluster method and give an example

A

select consecutive sequences of transactions by time, location, #
in the A/R cycle when you trace to ensure you do not miss anything

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

what i/c objective does block method test

A

completeness

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

what is significant transaction sampling

A

select items only above or specifically below a materiality limit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

can result from significant transactions be be projected

A

no, they cannot be projected because since the sample is only a particular transaction(s) thus it is not representative

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

do both stat and non-stat require prof judgement

A

yes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

when is professional judgement required in stat sampling

A
  • tolerable deviation rate
  • confidence level
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

what professional judgement is requited in non-stat sampling

A

professional judgement to draw conclusions about the population

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

what is representative sampling and what is an example

A

characteristics of the sample that are reflective of the population
e.g. if the population and the sample both have a 4% rate of error, sample is representative

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

does each unit have a chance of selection in representative sampling

A

yes, each unit has equal chances of selection

30
Q

what are 2 methods to obtain a representative sample

A
  • unrestricted random selection
  • systematic random - meaning first was chose randomly, but the rest were chose by procedure; relies on some sort of ordering - most likely for block sampling
31
Q

what is a sampling unit composed of

A

test of controls and details

32
Q

what does test of controls involve

A

looking at physical units, invoices, shipping documents, POs

33
Q

what does test of details involve

A

you are looking at the balances - dollar amount

34
Q

what are the 7 steps to assessing control risk

A
  • specifying audit objectives
  • define deviation conditions
  • define population
  • determine sample size
  • select the sample
  • perform control test procedures
  • evaluate the evidence
35
Q

what are the first 3 steps in the CR assessment related to and what do they ensure

A

they are related to problem recognition
ensuring that controls work, people are compliant to controls and if I/C objectives are being met

36
Q

describe the first step of CR assessment - specifying audit objectives

A
  • identify and test only key controls
  • identify whether control objectives related to I/C objectives of validity, completeness, proper period, authorization, accuracy and classification are met
37
Q

describe the second step of CR assessment - define deviation conditions

A

define the departures from I/C procedures
this must be done prior to testing so it is known to auditors before they encounter it

38
Q

what presence are we looking for in defining deviations Incontrol test and give an example

A

we are looking for the presence of an absence of I/C.
e.g. knowing that deviation is a credit manager not initialing on credit sale approvals, thus looking for this

39
Q

describe the third step of CR assessment - define population

A

says that conclusions can only be projected onto the sample the population comes from. this is important for validity and completeness

40
Q

describe the fourth step of CR assessment - determine sample size

A

consider that
- the higher the sample, the lower the sample risk
- tolerable deviation rate
- expected population deviation rate
- population size (very slight relation to sample size)

41
Q

describe the fifth step of CR assessment - select sample

A

should be selected from the population that the conclusion will apply to

42
Q

describe the sixth step of CR assessment - perform process

A

tests are performed with more than one test being performed on one sample - this is favorable because sampling is costly

43
Q

describe the seventh step of CR assessment - evaluate evidence

A

determine risk of assessing CR as too low or too high and compare TDR to EPDR and SDR

44
Q

what are the risks of assessing CR as too low

A

if you class it as too low, DR will be high and thus underestimated CR and overestimated the allowable DR. this means that not enough work is done. effectiveness suffers

45
Q

what are the risks of assessing CR as too high

A

if you class it as too high, DR will be low and thus overestimating CR and underestimated the allowable DR. this means that too much work is done. efficiency suffers

46
Q

is sdr calculated and is tdr expected to be perfect

A

yes, sdr is calculated and tdr is not expected to be perfect

47
Q

what is tdr

A

tolerable deviation rate
this is the error rate that you accept and still consider the control as functioning
determined through professional judgement prior to testing

48
Q

what is sdr

A

sample deviation rate
this is the actual rate of error in the sample
determined through testing

49
Q

what is EPDR

A

expected population deviation rate
rate expected prior to performing tests
this is determined through professional judgement from prior years and change in I/C

50
Q

what should be done if epdr is greater than tdr

A

testing of controls should not be done since rate is higher than tolerable - resume with pure substantive

51
Q

what should be done is epdr is less than tdr

A

test controls and get sdr

52
Q

what does it means it sdr is greater than tdr

A

controls are not working thus must do pure substantive

53
Q

what is an alternative path if sdr is greater than tdr but your are confident that is not true

A

obtain a bigger sample. this decision can come from your professional judgement

54
Q

what should be done if sdr is less than tdr

A

controls are working and a combined approach can be done

55
Q

what should be done when you discover deviations

A

follow up on the deviations by performing qualitative work and determine if the errors are
- pervasive
- misunderstanding
- deliberate
evaluate the effect on F/S and possible purpose and motives

56
Q

what is the A/R not authed example for 3 weeks example

A

discover that sales on credit have not been authed for 3 weeks
perform qualitative work and discover from HR that credit manager was on vacation
if all SDR creater than TDR are here - DISSMISS
qualitative trumps quantitative

57
Q

what is the price deviations for specific customer example

A

discover that there are price deviations
further research shows that it is only for a specific customer which means that it might be a special contract for lower price and higher volume
need to find contract

58
Q

what are the 7 steps in sampling for substantive

A
  • specify audit objective
  • define population
  • chose audit sample method
  • determine sample size
  • select sample size
  • perform substantive procedure
  • evaluate evidence
59
Q

Describe the first step in sampling for substantive procedures - specify audit objective

A

determine whether all management assertions are materially accurate
hypothesize whether BV is materially accurate

60
Q

when are assertions made

A

when numbers go from trial balance to F/S

61
Q

Describe the second step in sampling for substantive procedures - define population

A

examine individually significant items that exceed materiality
supplement significant items with representative sample from population by using stratification

62
Q

what is stratification

A

separation of the population into layers that are homogenous

63
Q

what is the main purpose of stratification

A

reduce sample size

64
Q

what can we stratify on

A

balance of the item

65
Q

on what can we make conclusions for strata samples

A

can only make conclusions on the population where the strata comes from

66
Q

how is stratification easier in terms of staffing

A

it makes it easier to assign staff as higher value items are assigned to higher experience staff and vise versa or lower value

67
Q

Describe the third step in sampling for substantive procedures - chose sampling method

A

decide whether to use statistical or judgmental sampling
for statistical use classical variable or attribute sampling

68
Q

Describe the fifth step in sampling for substantive procedures - select sample

A

can use random or non-random

69
Q

Describe the sixth step in sampling for substantive procedures - perform procedure

A

evidence gather will either back or refute management assertions

70
Q

Describe the seventh step in sampling for substantive procedures - evaluate evidence

A

where you determine identified misstatement (IM) and project it onto the population

71
Q

what is IM similar to in internal control testing

A

SDR

72
Q

when IM is projected what is it projected as

A

likely misstatement

73
Q

what is future possible misstatements (FPM)

A

misstatements that are determined through:
- professional judgement for non-sampling risk
- formula for sampling risk

74
Q

what is the equation to compare LM and FPM to performance materiality

A

LM + FPM < performance materiality, the population is accepted

75
Q

what happens if misstatements are less than performance materiality

A

it will go on the statement of unadjusted items

76
Q

what is the issue with convincing management to make an adjustment

A

there is a persuasion issue and management have to go back to the subledger and find the mistakes because LM is just a projection and they need to be convinced that they are actually there

77
Q

what will management try and argue

A

they will try to argue that the only existing misstatements are the known misstatements (IM) and there are no more

ACCT 425 (21 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions