ACC 5400 Lecture Notes - Lecture 37: Audit Evidence

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29 Nov 2018

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A representative sample is one in which the characteristics in the sample of audit interest are approximately the same as those of the population. In practice, an auditor can increase the likelihood of a representative sample by using care in designing the sampling process and selection, and evaluating the results. Sampling risk is the risk that an auditor reaches an incorrect conclusion because the sample is not representative of the population. Nonsampling risk is the risk that audit tests do not uncover existing exceptions in the sample. Statistical sampling allows quantification of sampling risk in planning the sample and evaluating the results. Probabilistic sample selection is a method of selecting a sample such that each population item has a known probability of being included in the sample. Nonprobabilistic sample selection is a method in which the auditor uses professional judgment rather than probabilistic methods. Probabilistic sample selection methods: random, systematic, probability proportional to size, stratified.

Related Questions

Which of the following statements is most correct regarding the independent auditor's reliance on the tests of controls performed by the internal auditors to reduce their substantive testing?

1-The independent auditor must obtain assurance of the independence of the internal auditors but need not test their work.

2-It is not acceptable for the independent auditor to rely upon the work of the internal auditors.

3-There are no restrictions in relying upon the work of internal auditors.

4-The independent auditor must evaluate the competency and objectivity of the internal auditors and must test a sample of the work of the internal auditors in order to rely upon their work.

The term "materiality" as used in auditing is best described as the

1-substance of the auditing procedures.

2-amount of misstatement on the financial statements that would influence a decision maker.

3-underlying evidence upon which the audit opinion is based.

4-amount of material the auditor gathers as evidence to support the audit opinion.

Prior to accepting an audit client an auditor has a professional obligation to

1-contact the predecessor auditor.

2-perform preliminary analytical review procedures.

3-do all of the listed actions.

4-obtain approval for the audit engagement from the SEC.

Which of the following best represents financial statement fraud?

1-The transfer agent issues 40,000 shares of the company's stock to a friend without authorization by the board of directors.

2-The controller of the company decreases a contingent liability by $3 million so the company will meet analysts' expectations this quarter.

3-The in-house attorney receives payments from the French government for negotiating the development of a new plant in Paris.

4-The accounts receivable clerk covers up the theft of cash receipts by writing off older receivables without authorization.

Sampling risk is the risk that

1-errors are inherent and may be present in the population without regard to the internal controls.

2-the population will not contain characteristics representative of the sample such that inferences made about that sample will be incorrect.

3-internal controls are not adequate to prevent or detect material errors.

4-the sample will not contain characteristics representative of the population such that inferences made about that population will be incorrect.

Control risk that is assessed excessively high (i.e. the auditor believes control risk is high when in reality it is moderate or low) leads to:

1-audit inefficiency.

2-a less expensive audit.

3-reduced substantive testing.

4-errors that are more likely to occur than anticipated.

The purchasing process consists of each of the following phases except

1-receipts of goods and services.

2-approval of items for payment.

3-authorized request for goods and services.

4-cash receipts.

Auditing and Assurance Services (16th Edition)

question 7-29

objective (7-4) The following audit procedures were performed inthe audit of inventory to satisfy specific balance-related auditobjective as discussed in chapter 6. The audit procedures assumethat the auditor has obtained the inventory count sheets that listthe clients inventory. The general balance-related audit objectivesfrom chapter 6 are also included.

Audit procedures

1) select a sample of inventory items in the factory warehouseand trace each item to the inventory count sheets to determine ifit has been included and if the quantity and description arecorrect.

2) trace selected quantities from the inventory list to thephysical inventory to make sure that it exists and the quantitiesare the same.

3) compare the quantites on hand and unit prices on this yearsinventory count sheets with those in the preceding year as a testfor large differences.

4) test the extension of unit prices times quantity on theinventory list for a sample of the inventory items, test foot thelist, and compare the total to the general ledger.

5) send letters directly to third parties who hold the clientsinventory, and request that they respondf directly to theauditors.

6) examine sales invoices and contracts with customers todetermine whether any goods are out on consignment with customers.Similarly, examine vendors in-voices and contracts with vendors todetermine whether any goods on the inventory listing are owned byvendors.

7) question operating personnel about the possibility ofobsolete or slow-moving inventory.

General balance-related audit objective

existence,completeness,accuracy,classification,cutoff,detailtie-in,realizable vaule,rights and obligations

a) identify the type of audit evidence used for each aduitprocedure.

b) identify the general balance-related audit objective orobjectives satisfied by each audit procedure.

ochreeel871

Auditing and Assurance Services (16th Edition) question 7-29objective (7-4) The following audit procedures were performed inthe audit of inventory to satisfy specific balance-related auditobjective as discussed in chapter 6. The audit procedures assumethat the auditor has obtained the inventory count sheets that listthe clients inventory. The general balance-related audit objectivesfrom chapter 6 are also included. Audit procedures 1) select asample of inventory items in the factory warehouse and trace eachitem to the inventory count sheets to determine if it has beenincluded and if the quantity and description are correct. 2) traceselected quantities from the inventory list to the physicalinventory to make sure that it exists and the quantities are thesame. 3) compare the quantites on hand and unit prices on thisyears inventory count sheets with those in the preceding year as atest for large differences. 4) test the extension of unit pricestimes quantity on the inventory list for a sample of the inventoryitems, test foot the list, and compare the total to the generalledger. 5) send letters directly to third parties who hold theclients inventory, and request that they respondf directly to theauditors. 6) examine sales invoices and contracts with customers todetermine whether any goods are out on consignment with customers.Similarly, examine vendors in-voices and contracts with vendors todetermine whether any goods on the inventory listing are owned byvendors. 7) question operating personnel about the possibility ofobsolete or slow-moving inventory. General balance-related auditobjectiveexistence,completeness,accuracy,classification,cutoff,detailtie-in,realizable vaule,rights and obligations

a) identify the type of audit evidence used for each aduitprocedure.

b) identify the general balance-related audit objective orobjectives satisfied by each audit procedure.

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ACC 5400 Lecture Notes - Lecture 37: Audit Evidence

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