week 3 - Audit

Question 1

What is audit sampling?

Answer 1

Audit sampling is the application of audit procedures to less than 100% of items in a population to obtain sufficient appropriate audit evidence.

Question 2

What are the two types of audit sampling?

Answer 2

Statistical sampling (based on probability theory) and Non-statistical sampling (based on auditor judgment).

Question 3

What is the key difference between statistical and non-statistical sampling?

Answer 3

Statistical sampling uses probability theory for sample selection, while non-statistical sampling relies on auditor judgment.

Question 4

What is sampling risk?

Answer 4

The risk that the auditor’s conclusion, based on a sample, differs from the conclusion that would be reached if the entire population were tested.

Question 5

What are the two types of sampling risk in tests of control?

Answer 5

1. Risk of over-reliance – Concluding that controls are effective when they are not.
2. Risk of under-reliance – Concluding that controls are ineffective when they actually work.

Question 6

What are the two types of sampling risk in substantive testing?

Answer 6

1. Risk of incorrect acceptance – Failing to detect a material misstatement.
2. Risk of incorrect rejection – Identifying a misstatement that does not exist.

Question 7

What is non-sampling risk?

Answer 7

The risk of errors due to human mistakes, reliance on incorrect information, or poor judgment rather than sample size.

Question 8

What is materiality in an audit?

Answer 8

Materiality refers to the significance of an omission or misstatement in financial statements that could influence users’ decisions.

Question 9

How do auditors determine materiality?

Answer 9

By assessing profit before tax, turnover, assets, and company context using professional judgment.

Question 10

How does materiality affect audit evidence?

Answer 10

Lower materiality levels require more audit evidence, increasing audit work and costs.