Evidence and sampling

Question 1

What type of substantive procedures are set out by ISA 500?

Answer 1

1. Inspection of assets or documents
2. Observation
3. Inquiry
4. Confirmation
5. Recalculation
6. Reperformance
7. Analytical procedures

Question 2

What are the two traditional categories of computer-assisted audit techniques?

Answer 2

1. Test data

2. Audit software

Question 3

Describe test data

Answer 3

Auditor data is put into the client’s system. The data can be real or dummy the system can be live or a copy.

Question 4

Describe audit software

Answer 4

Client’s data is put into the auditor’s system

Question 5

When is test data used?

Answer 5

To test the controls in the system

Question 6

When is audit software used?

Answer 6

For basic data analysis and substantive testing

Question 7

What is the process of performing analytical procedures?

Answer 7

1. Understand the business
2. Develop an expectation
3. Compare actual to expectation
4. Unexpected variations = risk

Question 8

What does ISA 520 state?

Answer 8

That the auditor can use analytical procedures as a form of substantive procedure

Question 9

What are analytical procedures as a form of substantive procedure dependent on?

Answer 9

1. Strength/comparability of relationships
2. Reliability of the data being used in the analysis
3. The level of disaggregation of the data available
4. The depth of the auditor’s knowledge of the client

Question 10

What is the direction of testing for overstatement?

Answer 10

1. Figure in accounts
2. Intermediate documentation
3. Supporting evidence

Question 11

What is the direction of testing for understatement?

Answer 11

1. Reciprocal population
2. Supporting evidence
3. Intermediate documentation
4. Figure in the accounts

Question 12

What does ISA 540 set out?

Answer 12

The audit approach for estimates

Question 13

Why are estimates high risk?

Answer 13

They are subjective in nature and they have a higher risk of management basis

Question 14

What are the most common procedures for an accounting estimate?

Answer 14

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 deadline
4. Test the operating effectiveness of the controls over how management made the estimate

Question 15

According to ISA 530, what is the objective of the auditor when using sampling?

Answer 15

To provide a reasonable basis for the auditor to draw conclusions about the population from which the sample is selected

Question 16

What is the sampling process?

Answer 16

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

Question 17

Define population

Answer 17

The entire set of data from which a sample is selected

Question 18

Define sampling units

Answer 18

The individual items constituting a population

Question 19

According to ISA 530, how should an auditor select items for sampling?

Answer 19

In such a way that each sampling unit in the population has a chance of selection

Question 20

Is random selection sampling statistical or non-statistical?

Answer 20

Statistical

Question 21

Is random systematic selection sampling statistical or non-statistical?

Answer 21

Statistical

Question 22

Is money unit sampling statistical or non-statistical?

Answer 22

Statistical

Question 23

Is haphazard selection sampling statistical or non-statistical?

Answer 23

Non-statistical

Question 24

Is sequence selection sampling statistical or non-statistical?

Answer 24

Non-statistical

Question 25

Is block selection sampling statistical or non-statistical?

Answer 25

Non-statistical

Question 26

According to ISA 530, which factors influence sample sizes?

Answer 26

1. Increase in the desired level of assurance 2. Increase in the expected error 3. Stratification of the population 4. Increase in the number of sampling units in the population 5. Increase in the auditor's assessment of the risk of material misstatement 6. Increase in the tolerable misstatement

Question 27

If management refuses to correct misstatements, what should the auditor do?

Answer 27

1. Obtain an understanding of the reasons of refusal 2. Determine whether the misstatements are material 3. Communicate the uncorrected misstatements to those charged with governance and request they be corrected, explaining that the audit report will be modified if material misstatements are not corrected

Question 28

Which matters are material by nature rather than size?

Answer 28

1. Misstatements that affect compliance with laws and regulations 2. Misstatements that affect compliance with debt covenants 3. Misstatements that affect ratios used to evaluate financial position, results, or cash flows 4. Misstatements that increase management compensation