CAS 520
Analytical procedures are the evaluation of financial information through analysis of plausible relationships among only financial data.
A) True
B) False
ANSWER: FALSE
CAS 520.4
4. For purposes of the CASs, the term "analytical procedures" means evaluations of financial information through analysis of plausible relationships among both financial and non-financial data. Analytical procedures also encompass such investigation as is necessary of identified fluctuations or relationships that are inconsistent with other relevant information or that differ from expected values by a significant amount. (Ref: Para. A1-A3)
7) True or False? Non-Sampling risk is the use of inappropriate audit procedures or misinterpretation of audit evidence and failure to recognize a misstatement or deviation.
A) True
B) False
ANSWER: A
CAS 530.A1
A1. Examples of non-sampling risk include use of inappropriate audit procedures, or misinterpretation of audit evidence and failure to recognize a misstatement or deviation.
Accounting estimates vary widely in nature and are required to be made by management when the monetary amounts cannot be directly observed.
A) True
B) False
ANSWER: A
CAS 540.2
Accounting estimates vary widely in nature and are required to be made by management when the monetary amounts cannot be directly observed. The measurement of these monetary amounts is subject to estimation uncertainty, which reflects inherent limitations in knowledge or data. These limitations give rise to inherent subjectivity and variation in the measurement outcomes. The process of making accounting estimates involves selecting and applying a method using assumptions and data, which requires judgment by management and can give rise to complexity in measurement. The effects of complexity, subjectivity or other inherent risk factors on the measurement of these monetary amounts affects their susceptibility to misstatement. (Ref: Para. A1-A6, Appendix 1)
What are the three requirements of CAS 520
A) Risk assessment procedures and related activities, Substantive analytic procedures, Performing audit procedures
B) Substantive analytic procedures, Analytic procedures that assist in forming a overall conclusion, Investigate results of analytic procedures
C) Substantive analytic procedures, Performing audit procedures, Investigate results of analytic procedures
D) Performing audit procedures, Analytic procedures that assist in forming a overall conclusion, Risk assessment procedures and related activities
ANSWER: B
CAS 520.5,6,7
5. When designing and performing substantive analytical procedures, either alone or in combination with tests of details, as substantive procedures in accordance with CAS 330, 3 the auditor shall: (Ref: Para. A4-A5)
(a) Determine the suitability of particular substantive analytical procedures for given assertions, taking account of the assessed risks of material misstatement and tests of details, if any, for these assertions; (Ref: Para. A6-A11)
(b) Evaluate the reliability of data from which the auditor's expectation of recorded amounts or ratios is developed, taking account of source, comparability, and nature and relevance of information available, and controls over preparation; (Ref: Para. A12-A14)
(c) Develop an expectation of recorded amounts or ratios and evaluate whether the expectation is sufficiently precise to identify a misstatement that, individually or when aggregated with other misstatements, may cause the financial statements to be materially misstated; and (Ref: Para. A15)
(d) Determine the amount of any difference of recorded amounts from expected values that is acceptable without further investigation as required by paragraph 7. (Ref: Para. A16)
Analytical Procedures that Assist When Forming an Overall Conclusion
6. The auditor shall design and perform analytical procedures near the end of the audit that assist the auditor when forming an overall conclusion as to whether the financial statements are consistent with the auditor's understanding of the entity. (Ref: Para. A17-A19)
Investigating Results of Analytical Procedures
7. If analytical procedures performed in accordance with this CAS identify fluctuations or relationships that are inconsistent with other relevant information or that differ from expected values by a significant amount, the auditor shall investigate such differences by:
(a) Inquiring of management and obtaining appropriate audit evidence relevant to management's responses; and
(b) Performing other audit procedures as necessary in the circumstances. (Ref: Para. A20-A21)
6) With regards to selecting the sample, which of the following best describes Stratification?
A) Dividing the population by monetary amounts then selecting population based on those amounts.
B) Dividing the population based on the transaction date and selecting one from each day available.
C) Dividing the population into discrete subpopulations with identifying characteristics
D) None of the Above.
ANSWER: C
CAS 530 appendix 1
Stratification and Value-Weighted Selection
In considering the characteristics of the population from which the sample will be drawn, the auditor may determine that stratification or value-weighted selection is appropriate. This Appendix provides guidance to the auditor on the use of stratification and value-weighted sampling techniques.
Stratification
1. Audit efficiency may be improved if the auditor stratifies a population by dividing it into discrete subpopulations which have an identifying characteristic. The objective of stratification is to reduce the variability of items within each stratum and, therefore, allow sample size to be reduced without increasing sampling risk.
Name all that apply to data regarding material misstatement of estimations
A) Proper judgement is made when selecting data
B) The data was gathered by a professional
C) The data is relevant and Reliable
D) No biasness was used in the gathering of data
ANSWER: ACD
CAS 540.25
In applying the requirements of paragraph 22, with respect to data, the auditor's further audit procedures shall address:
(a) Whether the data is appropriate in the context of the applicable financial reporting framework, and, if applicable, changes from prior periods are appropriate (Ref: Para. A95, A106);
(b) Whether judgments made in selecting the data give rise to indicators of possible management bias; (Ref: Para. A96)
(c) Whether the data is relevant and reliable in the circumstances; and (Ref: Para. A107)
(d) Whether the data has been appropriately understood or interpreted by management, including with respect to contractual terms. (Ref: Para. A108)
Which of the following would the auditor NOT do when designing and performing substantive analytical procedures?
A) Determine the suitability of particular substantive analytical procedures
B) Develop suitable data
C) Evaluate reliability of data
D) Develop an expectation of recorded amounts or ratios
ANSWER: B
CAS 520.5
When designing and performing substantive analytical procedures, either alone or in combination with tests of details, as substantive procedures in accordance with CAS 330, 3 the auditor shall: (Ref: Para. A4-A5)
(a) Determine the suitability of particular substantive analytical procedures for given assertions, taking account of the assessed risks of material misstatement and tests of details, if any, for these assertions; (Ref: Para. A6-A11)
(b) Evaluate the reliability of data from which the auditor's expectation of recorded amounts or ratios is developed, taking account of source, comparability, and nature and relevance of information available, and controls over preparation; (Ref: Para. A12-A14)
(c) Develop an expectation of recorded amounts or ratios and evaluate whether the expectation is sufficiently precise to identify a misstatement that, individually or when aggregated with other misstatements, may cause the financial statements to be materially misstated; and (Ref: Para. A15)
(d) Determine the amount of any difference of recorded amounts from expected values that is acceptable without further investigation as required by paragraph 7. (Ref: Para. A16)
With regards to Audit Sampling, determine the effect of this in relation to sample size.
An Increase in the auditor’s desired level of assurance that tolerable misstatement is not exceeded by the actual misstatement in the population.
A) Increase sample size
B) Decrease sample size
C) Does not affect sample size
ANSWER: A
CAS 530 Appendix 2
4. An increase in the auditor's desired level of assurance that the tolerable rate of deviation is not exceeded by the actual rate of deviation in the population
Increase
The greater the level of assurance that the auditor desires that the results of the sample are in fact indicative of the actual incidence of deviation in the population, the larger the sample size needs to be.
____ is known as a monetary amount for which the measurement, in accordance with the requirements of the applicable financial reporting framework, is subject to estimation uncertainty. (medium)
A) Estimation uncertainty
B) Management bias
C) Accounting estimate
D) Outcome of an accounting estimate
ANSWER: C
CAS 540.12
For purposes of the CASs, the following terms have the meanings attributed below:
(a) Accounting estimate – A monetary amount for which the measurement, in accordance with the requirements of the applicable financial reporting framework, is subject to estimation uncertainty. (Ref: Para. A14)
Which of the following are relevant when determining whether data is reliable for the purpose of designing substantive analytical procedures?
A) Source of the information available
B) Comparability of the information available
C) Nature and relevance of the information available
D) Controls over the preparation of the information
E) A,B,C
F) All of the above
ANSWER: F
CAS 520.A12
The reliability of data is influenced by its source and nature and is dependent on the circumstances under which it is obtained. Accordingly, the following are relevant when determining whether data is reliable for purposes of designing substantive analytical procedures:
(a) Source of the information available. For example, information may be more reliable when it is obtained from independent sources outside the entity; 4
(b) Comparability of the information available. For example, broad industry data may need to be supplemented to be comparable to that of an entity that produces and sells specialized products;
(c) Nature and relevance of the information available. For example, whether budgets have been established as results to be expected rather than as goals to be achieved; and
(d) Controls over the preparation of the information that are designed to ensure its completeness, accuracy and validity. For example, controls over the preparation, review and maintenance of budgets.
8) Which is not a requirement under CAS 530?
A) Nature and Cause of Deviation and Misstatements
B) Projecting Misstatements
C) Performing Audit procedures
D) All of the above
E) None of the above
F) A&B
G) A&C
H) B&C
ANSWER: E
CAS 530 Requirements
Sample Design, Size and Selection of Items for Testing
6. When designing an audit sample, the auditor shall consider the purpose of the audit procedure and the characteristics of the population from which the sample will be drawn. (Ref: Para. A4-A9)
7. The auditor shall determine a sample size sufficient to reduce sampling risk to an acceptably low level. (Ref: Para. A10-A11)
8. The auditor shall select items for the sample in such a way that each sampling unit in the population has a chance of selection. (Ref: Para. A12-A13)
Performing Audit Procedures
9. The auditor shall perform audit procedures, appropriate to the purpose, on each item selected.
10. If the audit procedure is not applicable to the selected item, the auditor shall perform the procedure on a replacement item. (Ref: Para. A14)
11. If the auditor is unable to apply the designed audit procedures, or suitable alternative procedures, to a selected item, the auditor shall treat that item as a deviation from the prescribed control, in the case of tests of controls, or a misstatement, in the case of tests of details. (Ref: Para. A15-A16)
Nature and Cause of Deviations and Misstatements
12. The auditor shall investigate the nature and cause of any deviations or misstatements identified, and evaluate their possible effect on the purpose of the audit procedure and on other areas of the audit. (Ref: Para. A17)
13. In the extremely rare circumstances when the auditor considers a misstatement or deviation discovered in a sample to be an anomaly, the auditor shall obtain a high degree of certainty that such misstatement or deviation is not representative of the population. The auditor shall obtain this degree of certainty by performing additional audit procedures to obtain sufficient appropriate audit evidence that the misstatement or deviation does not affect the remainder of the population.
Projecting Misstatements
14. For tests of details, the auditor shall project misstatements found in the sample to the population. (Ref: Para. A18-A20)
Evaluating Results of Audit Sampling
15. The auditor shall evaluate:
(a) The results of the sample; and (Ref: Para. A21-A22)
(b) Whether the use of audit sampling has provided a reasonable basis for conclusions about the population that has been tested. (Ref: Para. A23)
When responding to the assessed risks of material misstatements an auditor will? Say all that apply.
A) Create a point estimate or range
B) Build a valuation chart
C) Valuate how the management style and how effects the company
D) Look at the time it took to make the estimate
ANSWER: A
CAS 540.18
As required by CAS 330, 13 the auditor's further audit procedures shall be responsive to the assessed risks of material misstatement at the assertion level, 14 considering the reasons for the assessment given to those risks. The auditor's further audit procedures shall include one or more of the following approaches:
(a) Obtaining audit evidence from events occurring up to the date of the auditor's report (see paragraph 21);
(b) Testing how management made the accounting estimate (see paragraphs 22-27); or
(c) Developing an auditor's point estimate or range (see paragraphs 28-29).