Aud 2 Flashcards
what is the primary objective of probability proportional to sample size?
to identify overstatement errors.
test of credit approval policy is to support managements assertion of:
valuation and allocation – specifically the collect-ability of a/r, collect-ability is more likely, thus the valuation of a/r is proper.
What should an auditor evaluate when determining whether a particular assertion is relevant to a significant account balance or disclosure?
- -nature of the assertion
- -volume of transactions or data related to the assertion
- -nature and complexity of the systems, include the use of information technology, by which the entity processes and controls info supporting the assertion.
Compiled financial stmts that omit substantially all disclosures must indicate:
that the financial statements are not designed for those who are not informed about such matters.
What is included in the assertions about account balances at period-end?
- -existence: assets, liabilities, and equity interest
- -rights and obligations: holds control to the assets; and liabilities for the obligations of the entity
- -completeness: all assets liabilities and equity interest that should have been recorded is recorded
- -valuation and allocation: assets, liabilities, and equity interests are included in the financial stmnts at the appropriate amounts, and any resulting valuation or allocation adjustments are appropriately recorded.
How does the auditor control the risk of incorrect acceptance in probability-proportional-to-size (PPS) sampling?
by specifying the risk level for the sampling plan.
Should the phrase “Management is responsible for the accompanying financial statements” be included in the compilation report by the auditor?
yes, the phrase “Management is responsible for the accompanying financial statements” should be included in the compilation report.
What is ratio estimation sampling?
it is based on ratios between audited amounts and recorded amounts.
The approach is most efficient when the ratio is not equal to one.
What is the document retention period time?
No less than five years.
What should the auditor not do within the document retention period?
the auditor should not delete or discard any documentation. However, audit documentation may be added/changed after the documentation completion date, assuming that the reasons for the change are all documented.
What document is needed to verify that all merchandise received is recorded?
Receiving reports shows that the merchandise was received.
what are the three common types of classical variable sampling estimators?
- mean-per-unit
- ratio
- difference
what can classical variable sampling (CVS) be used for?
Classical variable sampling can be used substantive testing to look for material misstatements in an account balance or class of transactions.
What is attribute sampling generally used for?
Attribute sampling is generally used for test of controls.
What is detection risk?
Detection risk is part of attestation risk – the risk that the practitioner may unknowingly fail to modify appropriately the opinion.
What is included in attestation risk?
Detection risk is composed of inherent risk, control risk, and detction risk
List the specific control activities:
- -Authorization
- -Performance reviews
- -Information processing
- -Physical controls
- -Segregation of duties
When must an entity have a single audit in any year?
A single audit is required in a single year when an entity has:
- -spends > $750K per fiscal year in federal awards, grants and funds
- -spends funds from one or more federal programs, and
- -if the entity only expends funds from one program, it “may” be eligible for a program audit versus a single audit.
Does a review engagement require the auditor to be independent?
Yes, the auditor must maintain independence in mental attitude in all matters relating to the engagement in a review.
What statement should be included in a report issued on significant deficiencies or material weaknesses?
a ‘restricted user” statement should be included in the report on significant deficiencies or material weaknesses.
