week eight

Question 1

what is the ISA 402?

Answer 1

ISA 402 requires auditors to obtain sufficient evidence if work is been outsourced, some of thee outsourced work may include:

-payroll
-the whole financial control system
-receivables
-

Question 2

in order to understand the nature of service organisation auditors should:

Answer 2

-understand what services are been provided
-asses the internal controls of service providers
-test controls of the service providers
-speak to the auditors of the service providers and obtain more information

Question 3

what is sampling in audit?

Answer 3

the application of audit procedures on less than 100% of the population, its result aims to draw conclusions on the population as a whole.

Question 4

how can auditors reduce risk?

Answer 4

-increase sample size
- use stratification

Question 5

what is stratification?

Answer 5

stratification is the process of breaking down a population into smaller sub sets of population

Question 6

what are the three different types of statistical sampling?

Answer 6

-random
-systematic
-monetary selection

Question 7

what are the three different types of non-statistical sampling?

Answer 7

-block selection
-haphazard sampling
-sequential sampling

Question 8

what is the difference between deviation and misstatements?

Answer 8

they are both issues found during the audit procedures, in deviation - the issue is found while testing controls. whereas, in misstatement, the issue is found during substantive testing.

Question 9

what happens if the deviation rate is above a tolerable level?

Answer 9

-more substantive testings should be done

-isolated misstatements can be ignored as they are n to material to the sample.

Question 10

what happens if substantive testings rate is above a tolerable level?

Answer 10

-sample size would be more likely to increasew

Question 11

what is the purpose of computer assisted audit technique?

Answer 11

-test of controls automated which makes it easier for auditors. however, it may be inconvenient for clients to use while they have a live system.

Question 12

what is data analytics and why is it helpful for auditors?

Answer 12

data analytics is a science of examining large data sets with the purpose of drawing conclusions about that information.

it may be helpful to auditors to compare purchases or value inventory.

Question 13

what does it mean to have a good control system for auditors?

Answer 13

-auditors will test controls for control risk and if controls are all good:

-they will decrease the number of tests run
-less places to visit
-more reliance on analytical review and management representation

Question 14

what are some of the limitations of inherent controls?

Answer 14

-human errors
-collusion of staff
-mangement override
-management judgements soon what controls to use

Question 15

what are some of the components of internal controls?

Answer 15

-the control environment
-the entity’s assessment process
-information system
-control activities
-monitoring

Question 16

what is meant by control environment?

Answer 16

the control environment is the attitudes, awareness and actions of management and those responsible for the entity’s internal control

Question 17

how does a clients risk assessment process relate to the risk of misstatements?

Answer 17

risk assessments is how managements identifies and processes risk, the stronger their risk strategies are, the risk for misstatement in the financial system will be lower

Question 18

what are control activities?

Answer 18

policies and procedures to ensure management responsibilities are carried out.

Question 19

what are application controls?

Answer 19

procedures that apply to specific parts of the system to ensure accuracy and completeness of information.