Week 8

Question 1

Audit Sampling

Answer 1

Calculate the sample size
Statistical
Uses a formula to determine size
For example: Control Testing sample size is determined by: n = reliability factor / total deviation rate

Non-statistical
Relies on the professional judgement of the auditor

Method of Sample Selection
Random
Systematic (Interval)
Haphazard
Block
Judgemental

Question 2

Statistical

Answer 2

Advantages
Quantitative evaluation of the sample results.
More defensible expression of the test results.
More objective recommendations for management.

Disadvantages
Can be costly and time consuming.
Require additional training costs for staff members to use statistics or specialized software

Question 3

Non-statistical (Professional Judgment)

Answer 3

Advantages
Enables focus on audit items of greatest value and highest risk.
Can be equally effective and efficient as statistical sampling while being less costly

Disadvantages
Cannot draw objectively valid statistical inferences from the sample results
Cannot quantitatively measure and express sampling risk

Question 4

Stratification of the Population

Answer 4

Improves efficiency of the audit

Divide the population into sub populations
For example: A/R by age

Afterwards sample selected from each stratum

Ensures the sample includes items that are material or risky

Question 5

Evaluate Results of Sampling

Answer 5

A+
No exceptions
Evidence supports control risk rating of low

B+
Some exceptions
Examine causal – contained?
If systemic – another control? – test the alternative control

F
Need to change audit plan

Question 6

Objectives of IC for Financial Reporting

Answer 6

Completeness
Recorded – omission of transactions will be prevented or detected

Accuracy
Classified – transactions are recorded in the right account
Summarized – transactions are summarized & totaled correctly
Posted – accumulated totals in special journals are transferred to the Sub-ledger and G/L correctly
Timely – transactions are recorded in the correct accounting period

Valuation
Valued – correct amounts are assigned to transactions

Existence
Real – fictitious or duplicate transactions are not included

Question 7

Entity vs. Transactional Controls

Answer 7

Entity
Throughout the entire organization

Transaction
Affect a particular transaction
Respond to WCGW with transactions
Must be sensitive enough to prevent or detect

Question 8

Techniques for Documenting IC

Answer 8

Narrative
Smaller clients
Description in words

Flowchart
Larger more complex environments
Visual representation of process using common flowchart symbols

Combination of narrative & flowchart

Checklists & preformatted questionnaires