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AS > Evidence And Sampling > Flashcards

Evidence And Sampling Flashcards

1
Q

ISA (UK) 500 substantive procedures examples

A

Inspection of assets/documents

Observation

Inquiry

External confirmation

Recalculation

Reperformance

Analytical procedures

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2
Q

Is evidence generally persuasive or conclusive?

A

Persuasive

So sometimes need to preform more than one substantive procedure to address a given risk

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3
Q

Two traditional categories of Computer Assisted Audit Technique (CAAT)

A

Test data

Audit software

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4
Q

Test data: Description

A

Auditor data put into client’s system

Real or dummy data
Live or copy system

E.g. Entering timesheet with hours outside the normal range to check system rejects it
Entering valid purchase invoice to check that it is allocated to the correct account

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5
Q

Audit Software: Description

A

Client data put into auditor’s system

E.g. Reperformance of addition or ageing of transactions
Preparation of reports
Calculations of ratios
Sample selection

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6
Q

Test data: Use

A

Test controls in the system

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7
Q

Audit Software: Use

A
  1. Basic data analysis
  2. Substantive testing
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8
Q

Three areas data analytics can assist with

A
  1. Transaction analysis
    E.g. matching purchase orders, goods received notes, invoices
  2. Judgmental areas
    E.g. sensitivity analysis to test assumptions on net realisable value of inventory
  3. Analytical procedures
    E.g. analysing revenue trends by product or region
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9
Q

How may data analytics be presented?

A

Bar or pie charts

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10
Q

IAS (UK) 520 states analytical procedures can be used as substantive procedures. Though it is dependent on what sort of factors

A

Strength/compatibility of relationships
Reliability of data
Level of disaggregation of the data available
Knowledge of client

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11
Q

What extra step has to be done during ARs in the evidence stage?

A

Determining whether expected variations are acceptable (based on materiality)

If not, seek further evidence

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12
Q

How can an auditor seek further evidence if an AR doesn’t provide enough evidence?

A
  1. Management enquiries
  2. Corroborate to other evidence
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13
Q

Overstatement direction of testing

A
  1. Figure in accounts
  2. Intermediate documentation
  3. Supporting evidence
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14
Q

Understatement testing direction

A
  1. Reciprocal population
  2. Supporting evidence
  3. Intermediate documentation
  4. Figure in accounts
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15
Q

Examples of accounting estimated

A

Depreciation
Allowance for receivables
Provisions

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16
Q

Why are estimates more risky?

A
  1. Subjective
  2. Management bias
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17
Q

Common audit procedures for testing accounting estimates

A
  1. Review and test the process used by management to develop the estimate
  2. Use an independent expert to make an estimate for comparison with the company’s figure
  3. Review subsequent events for confirmation of the accuracy of the estimate
  4. Test the operating effectiveness of the controls over how management made the estimate
18
Q

Sampling process

A
  1. Identify population
  2. Identify sampling unit
  3. Select sample
  4. Identify errors
  5. Draw conclusions
19
Q

Population

A

Entire set of data from which samples selected

20
Q

Sampling units

A

Individual items constituting the population

21
Q

Statistical sampling methods

A
  1. Random selection
  2. Systematic selection
  3. Money Unit Sampling (MUS)
22
Q

Systematic selection

A

Random start
Constant interval between selections

23
Q

MUS

A

Every £ in the population has equal change of being selected

24
Q

Non-statistical sampling methods

A
  1. Haphazard selection
  2. Sequence/block selection
25
Q

Haphazard selection

A

Auditor selects sample believed to be representative, without use of probability

26
Q

Sequence/block selection

A

Select a block of consecutive items

Usually for Tests of control

27
Q

Effect on sample size: increase in risk

A

Increase

28
Q

Effect on sample size: increase in desired assurance level.
E.g. need less assurance because other procedures carried out

A

Increase

29
Q

Effect on sample size: increase in tolerable misstatement

A

Decrease

30
Q

Effect on sample size: increase in expected error

A

Increase

31
Q

Effect on sample size: Stratification of population

A

Decrease

32
Q

Effect on sample size: Increase in no. sampling units

A

Negligible effect

33
Q

What to take into account regarding drawing conclusions from errors

A
  1. Nature
  2. Cause
  3. Impact
  4. Probable misstatement in population
34
Q

Nature or errors identified

A

Whether errors are true misstatements

E.g. misposting between receivables accounts does not actually reflect an error in the receivables balance

35
Q

Cause of errors identified

A

Discover common features

E.g. if all errors arise in the same location
Further testing may be required

36
Q

(Error?) Impact on other parts of the audit

A

May influence the auditor’s assessment of the accounting and internal control systems

37
Q

Probable misstatement in the population

A

Results should be extrapolated

If projected misstatement exceeds or is close to the tolerable misstatement then additional testing may be required

38
Q

What must the auditor do about uncorrected misstatements

A

Evaluate the effect

Communicate to management on a timely basis and request they be corrected

Written representations obtained from management stating that they believe the misstatements to be immaterial

39
Q

What should the auditor do is management refuses to correct misstatements?

A
  1. Obtain understanding of reasons
  2. Determine whether material
  3. Communicate misstatements to TCWG and request corrected.
    Explaining that audit report will be modified if material misstatements not corrected
40
Q

Misstatements which are not material in size but are material in nature if they affect…

A
  1. Legal/regulatory compliance
  2. Compliance with debt covenants
  3. Ratios used to evaluate financial position, results or cash flows
  4. Increase in management compensation

AS (15 decks)

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