sampling

Question 1

What is tolerable deviation rate

Answer 1

max rate of error the auditor can accept

Question 2

what is expected deviation rate

Answer 2

auditors estimated error rate

Question 3

what is upper deviation rate

Answer 3

high end of range for auditors estimate of error

Question 4

what is allowance for sampling risk

Answer 4

adjusts sample rate to get to upper deviation rate

Question 5

what is the equation for upper deviation risk

Answer 5

sample deviation rate
                \+ 
allowance for sampling risk
                =
 upper deviation rate

Question 6

Which factors affect sample size

Answer 6

• risk of assessing control risk too low
• tolerable deviation rate
• expected deviation rate

Question 7

What is the relationship between sample size and risk of assessing control risk too low

Answer 7

inverse relationship

Question 8

what is the relationship of sample size and tolerable deviation rate

Answer 8

inverse relationship

Question 9

what is the relationship b/w sample size and expected deviation rate

Answer 9

direct relationship

Question 10

when would you use discovery or stop and go sampling methods

Answer 10

few or no deviations are expected

Question 11

what factors have a inverse relationship to sample size for variable sampling

Answer 11

• tolerable misstatement

- acceptable level of risk

Question 12

what factors have a direct relationship to sample size for variable sampling

Answer 12

• expected misstatement
• population variability
• assessed level of risk

Question 13

what relationship does sample size and risk of incorrect acceptance have?

Answer 13

inverse relationship. low risk of incorrect acceptance requires higher sample size.

Question 14

explain the relationship between detection risk and substantive tests

Answer 14

inverse relationship.

Question 15

what is detection risk

Answer 15

chance that auditor will fail to find material misstatements is low

Question 16

what happens is a auditor has a discrepancy with evidence while doing testing

Answer 16

the auditor should reevaluate their risk of fraud and do alternative procedures. They would not keep testing the evidence since they know that particular evidence has issues. they would not increase the sample size

Question 17

What happens at the conclusion of an audit using audit data analytics.

Answer 17

at the conclusion of an audit using ADA’s the auditor will use ADA’s to

• form an overall conclusion b/c at that point they will have a deeper understanding of the entity and may use it to perform procedures similar to risk assessment procedures
• gain comfort that no material misstatements went unidentified
• update existing analytics with numbers that were revised during the audit

Question 18

what is the auditors most reliable form of evidence

Answer 18

auditors direct personal knowledge through observation, examination, inspection, or recalculation

Question 19

what is the hierarchy of audit evidence

Answer 19

Auditors direct personal knowledge
External evidence
Internal evidence
Oral evidence

Question 20

if the auditor performs risk assessment procedures and decides not to perform test of controls what does that mean?

Answer 20

it means that the auditor does not think there is a cost benefit to performing test of controls. it does not mean that the auditor thinks that the controls are operating effectively because a auditor cannot make that conclusion without testing controls.

Question 21

do analytical procedures test controls?

Answer 21

analytical procedures do not test controls because analytical procedures are substantive tests that test account balances.

Question 22

what is risk of material misstatement

Answer 22

risk that the financials are misstated

inherent risk *control risk

Question 23

what is control risk

Answer 23

risk of material misstatement given that there are no controls

Question 24

what is inherent risk

Answer 24

risk of material misstatement

Question 25

does reliable evidence relating to managements assertions need to be conclusive

Answer 25

no it just needs to be corroborative and persuasive

Question 26

what does audit evidence consist of

Answer 26

underlying accounting data and corroborative evidence

Question 27

is a clients accounting data sufficient audit evidence to support financial statements?

Answer 27

no because you need accounting data and corroborative data to be considered sufficient

Question 28

what is the relationship between sample size and control risk

Answer 28

direct.

Question 29

what does the relevance of audit evidence depend on

?

Answer 29

PCAOB says audit evidence depends on:

• design of audit procedure, if what designed to directly test an assertion or if its testing an over or understatement
• timing of audit procedure

Question 30

how do you figure out the projected misstatement

Answer 30

((recorded amount- audited amount)/ recorded amount) * sample interval

Question 31

can control risk, inherent risk, and detection risk be assessed in nonquantitative terms?

Answer 31

yes

Question 32

what is the definition of exception for audit testing

Answer 32

response that indicates a difference in clients records and info given by the confirming party