Module 15 EXPAND

Question 1

What are the balance sheet assertions?

Answer 1

Completeness 
Rights and obligations
Accuracy valuation and allocation 
Classification 
Existence 
Presentation

CRACE P

Question 2

What are the Transactions assertions? P+L

Answer 2

Occurrence
Classification 
Completeness
Cut off
Accuracy 

Presentation

OCCCA P

Question 3

Assertions give the auditor?

Answer 3

A clearer definition of specific audit objectives

A clearer demonstration of work done o

Question 4

What are the three sources of evidence?

Answer 4

Auditor generated
Client generated
Third party/externally generated

Question 5

Auditor generated source of evidence

Answer 5

Highest reliability, least susceptible to client manipulation
Highest ability to assess quality
Lowest susceptibility to director manipulation

Question 6

Client generated source of evidence

Answer 6

Medium reliability (depend on controls)
Medium ability to assess quality
Highest susceptibility to manipulation

Question 7

Third party/ external sources of evidence

Answer 7

Varied reliability- form independent knowledgeable third party more reliable than a close source
Lowest ability to assess quality
Varied susceptibility to director manipulation- independent third party less than source close to client

Question 8

What are the four categories of nature?

Answer 8

Most reliable:

Natural
Created
Rational
Testimonial

Least

Question 9

What is natural evidence?

Answer 9

Auditor physically witnesses
Primary evidence
Most reliable

Question 10

What is created evidence?

Answer 10

Documentary evidence
Secondary evidence
Should always use originals

Question 11

What is rational argument?

Answer 11

Neither the physical presence of something nor documentary evidence
Evidence obtained through applying logic
Circumstantial evidence

Question 12

What is testimonial evidence?

Answer 12

Spoken evidence
Verbal evidence
Lease reliable

Question 13

What is the principle of synergy?

Answer 13

Where evidence from two independent sources is consistent, the sum of assurance gained is greater than the sum of the individual parts

2+2=5

Question 14

What is the principle of diminishing marginal effect?

Answer 14

Where evidence obtained from one source only, further consistent evidence form the same source will increase the total assurance by less than the sum of its parts

2+2=3

If keep going to same source, evidence worth less each time

Question 15

What are the decision regarding selection of sampling approach determined by?

Answer 15

Characteristics of the population
ROMM
Audit efficiency of the approach

Question 16

What is sampling?

Answer 16

Testing less than 100% of populations on a stat or non stat basis such that all units have a chance If selection

In order to give reasonable basis on which to draw conclusions about whole population

Question 17

What are sampling units?

Answer 17

Individual items making up a population

Question 18

What are the sample selection methods?

Answer 18

Random selection
Monetary unit sampling
Haphazard selection

Question 19

What is random selection?

Answer 19

Items selected on a random basis through random number generators

Question 20

What is monetary unit sampling?

Answer 20

Type of value weighted selection
Results directed to larger value items which can result in smaller sample sizes

E.g cumulative goes over 15,30,45

Question 21

What is haphazard selection?

Answer 21

Selects the sample with no structured technique but would avoid unconscious bias or predictability to ensure all have chance of selection

Form of non statistical sampling

Question 22

Extrapolating sample

Answer 22

only possible where items selected using appropriate method

Hard error = have seen it
Soft error = extend sample

Question 23

Evidence collection techniques?

Answer 23

Inspection (of assets = substantive, of documents = both)
Confirmation (substantive)
Analytical procedures (substantive)
Recalculation (substantive)
Enquiry (both)
I CARE

Observation (test of controls)
Reperformance (test of controls )

Question 24

Substantive testing vs test of controls

Answer 24

Test of control is a test of something the client has already done

Substantive is the auditors own test

Question 25

Substantive testing can be broken down into?

Answer 25

Substantive analytical procedures (testing total population)

Tests of details (specific items)

Question 26

What are substantive procedures?

Answer 26

Undertakes to detect possible misstatements in f/s

Testing the numbers at year end

Question 27

Typical audit programme should include?

Answer 27

Client name
Year end date
Title 
Description of substantive procedures 
Assertions met by each
Initials of who competed 
Date completes
Work paper reference

Question 28

Approach to analytical procedures?

Answer 28

Form expectation
Compared to figure
Differences investigated and substantiated
Conclude ether correct or misstatement identified

Question 29

What are the five analytical procedure techniques? When do they happen

Answer 29

Comparison (P)
Ratio analysis (P)
Reasonableness tests (P+ST)
Trend analysis (ST)
Large and unusual items review (ST)

Question 30

What are reasonableness tests?

Answer 30

Using information available to develop a model or formula to calculate expected balance

High quality
Most accurate will constitute a proof in total
Can be complicated
Components are backed up by evidence

Question 31

What is trend analysis?

Answer 31

Looking at changes in an account balance over a number of periods

Question 32

What is large and unusual items review?

Answer 32

Review is the content of a general ledger account for items that appear unusual by nature or size

Question 33

Substantive testing techniques

Answer 33

Inspection
Confirmation 
Analytical procedures
Recalculation 
Enquiry 

I CARE