Directional Testing (2)

Question 1

What happens with most systems?

Answer 1

Auditors would include tests designed to discover both errors and omissions

Question 2

What should be recognised before selecting the test sample?

Answer 2

The type and direction of the test

Question 3

What if the sample which tested accuracy and validity of receivables ledger was chosen from a file of sales invoice?

Answer 3

It would not substantiate the fact that there were no errors in receivables ledger

Question 4

When is directional testing particularly appropriate?

Answer 4

When testing the FS assertion of existence, completeness, rights and obligations, and valuation

Question 5

What does the concept of directional testing derive from?

Answer 5

The principle of double entry bookkeeping. As every misstatement of a debit entry will result in either a corresponding misstatement of a credit entry, a misstatement in the opposite direction, or another debit entry

Question 6

By designing audit procedures carefully?

Answer 6

Auditors are able to use this principle in drawing audit conclusions

Question 7

What do drawing audit conclusions do?

Answer 7

Not only about the debit or credit entries that they have rather directly tested, but also about corresponding credit or debit entries that are necesssary to balance the books

Question 8

Test item for debit items audit procedures?

Answer 8

Test debit items for overstatement by selecting debit entries recorded in nominal ledger and confirming value, existence and ownership

Question 9

Test item for credit items audit procedures?

Answer 9

Test credit items for understatement by selecting items from appropriate sources independent of nominal ledger and ensuring they result in the correct nominal ledger entry