Audit Sampling
Each population item has an equal chance of being sampled and results (i.e. sampling risk and likely misstatement) are quantifiable.
What is statistical sampling?
The bank confirmation provides good quality evidence for this management assertion.
What is existence?
This type of confirmation only requires a response if there is a discrepancy.
What is a negative confirmation?
The most important assertion when testing Accounts Payable.
What is Completeness.
The examination of less than 100% of a population in order to form a conclusion about the entire population.
What is audit sampling?
This is a bank statement sent by the bank directly to the auditor that covers a period following the year end date. It is used to test the bank reconciliation.
What is a cut-off bank statement?
You just performed a control test on Accounts Receivables. TDR is 5% and you've determine that the UEL is 4%. This is the effect of your assessment of control risk on the rest of your audit.
What is "I conclude that Control Risk is low, accept the population, and rely on controls going forward. This means I can do less substantive testing in this particular area"?
When testing for completeness, this control allows the auditor to check the numerical sequence for missing documents and unrecorded transactions.
What is the best reason for prenumbering documents such as purchase orders and receiving reports.
The risk that a sample does not represent the population and the conclusion based on the sample is wrong.
What is sampling risk?
The likely error in a substantive test is $5,000. Materiality is $3,500. The auditor will proceed by _______.
What is recommending an adjusting journal entry?
The equation for the Accounts Receivable continuity schedule.
What is "Opening AR balance + Revenues from credit sales - Cash received against AR - Uncollectible accounts written off = Ending balance of AR"?
Three inventory count activities that the auditor should observe.
What is (pick 3 of the following): instructions to staff on count procedures, supervision of staff on count procedures, method of identifying obsolete inventory, segregated consignment items, actual counting, receiving/shipping goods during count, pricing procedures?
The type of sampling where the auditor looks for the presence or absence of a control condition.
What is attribute sampling?
The auditor performs a control test and finds 3 deviations in a random sample of 50 items. R=6.69. Given UEL = R/n, UEL is _____.
What is 13% (6.69/50)?
The following control condition "Sales invoices must be checked to ensure that the quantity shipped agrees with the quantity billed" relates to this control objective.
What is Accuracy?
Auditors should send confirmations to vendors with this type of balance.
What is zero or small account balances?
The risk that the auditor incorrectly accepts a population that is materially misstated.
What is Effectiveness Risk (Type II Error, Beta Risk)?
You audit 25 items and discover a net overstatement of inventory of $1,600. The audited items have a book value of $65,000. There were 120 inventory items listed with a total inventory book value of $375,000. The likely error is this.
What is $7,680?
Error/sampling unit = $1600/25 = $64/unit
Likely error = 120 items x $64/item = $7,680.
A control condition for the control objective of validity related to the RRR process.
What is "Recorded sales should be supported by a bill of lading and sales order"?
Three places an auditor can look to search for unrecorded liabilities.
What is (select 3 of the following): examine unmatched RR file, supplier statements after year end, subsequent payments after year end, invoices received after year end, unmatched VI file?