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auditing international approach
Questions and Answers of
Auditing International Approach
The audit working papers often include an auditee-prepared aged trial balance of accounts receivable as of the balance sheet date. The aging is best used by the auditor for which of the
Which of the following would the auditor consider to be an incompatible operation if the cashier receives remittances?a. The cashier prepares the daily deposit.b. The cashier makes the daily deposit
What is the purpose of auditing inter-company bank transfers just before and after the year-end?
Why is it a control weakness if the same employee can authorize inventory transfers and record accounts receivable entries?
What purpose is served by prenumbering sales orders, shipping documents (packing slips and bills of lading), and sales invoices?
What is an example of a substantive audit procedure that provides evidence related to the existence of cash? of accounts receivable?
What assertion is the auditor most concerned about in auditing the revenues, receivables, and receipts process? Why?
Give two examples of dual-purpose tests that can be used in the revenue process.
What are some common substantive audit procedures for revenues, cash, and accounts receivable?
In what situations is it most likely that auditors will decide to test controls over revenue transactions?
What are an auditor’s main concerns related to revenue transactions? Why?
What are management’s main control objectives related to the revenue process? Why?
What are the main classes of transactions and related account balances for the revenue process?
Your audit firm is planning the audit of a company’s accounts receivable, which consists of 1,032 customer accounts with a total recorded amount (book value) of $300,000. You have already decided
N. Wolfe, PA, is planning the audit of Goodwin Manufacturing Company’s inventory. Wolfe plans to audit the inventory by selecting a sample of items for physical observation and counting, followed
Prepare tables like the one in Exhibit DC 10B-2 under different assumptions for the three combinations given below. Calculate monetary-unit sample sizes using the Poisson risk factors for a dollar
Write an explanation of the auditing theory and GAAS regarding sampling plans when the risk model causes the calculation of RIA (acceptable risk of incorrect acceptance) to exceed 50%.
Using the discovery sampling theory and R value tables, fill in the missing data in each case below. (a) (b) (c) Critical rate of occurrence 0.4% 0.5% 1.0% Required probability q9 q9 q9 Sample size
Using the table of random digits and the Poisson risk factor equation, find the computed UEL for each case below. (a) (b) (c) Risk of assessing control risk too low 0.01 0.05 0.10 Sample size 300 300
When you audited Kingston Company’s performance of its control procedures, you found four deviations of “wrong quantity billed” in a sample of 80 invoices. At the risk of assessing control risk
A local industrial company has two departments. In the larger department, about 45 sales invoices are completed each day; in the smaller department, about 15 invoices are completed each day. About
Why do you think the auditing profession has no definite rules for deciding the amount of an adjustment?
If you had to pick the one best measure for an amount to recommend for adjustment based on a sample, which one would you choose?
What is the UEL for the audit of 96 dollar units from the $300,000 accounts receivable, given the errors shown in Exhibit 10B–7, for RIA = 0.48? for RIA = 0.05? What interpretation can you give to
What is the risk-related interpretation of each of the UELs you calculated in question 10B-39?
Suppose you have audited a $600,000 recorded amount of inventory with a sample of 100 dollar units and their logical units and found no errors. What is the UEL at RIA = 0.05? RIA = 0.10? RIA = 0.25?
What happens when two dollar units for the sample fall in the same logical unit?
How does MUS sample selection produce an automatic stratification of choosing the high-value logical units in a control account balance?
What effect does the identification of individually significant logical units have on the size of the recorded amount population for MUS?
All other factors remaining the same, will an MUS sample size be larger, smaller, or the same for a larger tolerable misstatement?
All other factors remaining the same, will an MUS sample size be larger, smaller, or the same for a larger expected misstatement?
All other factors remaining the same, will an MUS sample size be larger, smaller, or the same for a larger risk of incorrect acceptance?
All other factors remaining the same, will an MUS sample size be larger, smaller, or the same for a larger book balance?
In what way does MUS resemble attribute sampling for control deviations?
What are the advantages and disadvantages of MUS?
What is the unique feature of MUS?
What are some of the other names for types of MUS?
What position is taken in GAAS with respect to the risk of incorrect rejection?
What considerations are important for determining the risk of incorrect rejection?
Why is the risk of incorrect acceptance considered more critical than the risk of incorrect rejection in connection with audit decisions about an account balance?
If audit risk (AR) is 0.015, inherent risk (IR) is 0.50, control risk (CR) is 0.30, and analytical procedures risk (APR) is 0.50, what risk of incorrect acceptance (RIA) is suggested by the expanded
Is there any benefit to be gained from using the audit risk model to calculate risk of incorrect acceptance?
Does use of the audit risk model to calculate risk of incorrect acceptance remove audit judgment from the risk determination process?
What is the objective of test of controls auditing with attribute sampling? of test of a balance with monetary-value sampling?
When you have several alternative test of controls sample sizes to choose from, how do you choose the one to audit?
What are the links that connect test of controls sample planning with substantive balance-audit sample planning?
What is the proper interpretation of the probability in discovery sampling?
What is the UEL for these data: sample size audited = 46, actual deviations found = 3, effectiveness risk = 35%?
What is the auditing interpretation of the sampling error–adjusted deviation rate (UEL)?
What steps are involved in selecting a sample using the systematic random selection method?
Are you required to use all five digits of a random number when you have a random number table, such as the one at the end of this appendix?
When you subdivide a population into two populations for attribute sampling, how do the two samples compare to the one sample that would have been drawn if the population had not been subdivided?
Test yourself to see whether you can get the sample size of 70 using the Poisson risk factor equation with these specifications: effectiveness risk = 5%, tolerable deviation rate = 9%, expected
What facts, estimates, and judgments do you need to figure a test of controls sample size using the R value tables and Poisson risk factors? What other relevant judgment is not used?
Test yourself to see whether you can get the sample size of 87 from the R value table with these specifications: effectiveness risk = 5%, tolerable deviation rate = 9%, expected errors = 3.
What facts, estimates, and judgments do you need to figure a test of controls sample size using the R value tables? What other relevant judgment is not used?
What professional judgment and estimation decisions must be made by auditors when applying statistical sampling in test of controls audit work?
What is the connection between material dollar misstatement assigned for the substantive audit of a balance and tolerable deviation rate used in a test of controls sample?
What is the connection between possible assessments of control risk and a judgment about tolerable rate, both considered prior to performing test of controls audit procedures?
What is the probability of finding one or more deviations in a sample of 100 units if the deviation rate in the population is only 0.5%?
What is the probability of finding one or more deviations in a sample of 100 if the population deviation rate is actually 2%?
What general considerations are important when an auditor decides on an acceptable risk of assessing control risk too low?
What general considerations are important when an auditor decides on an acceptable risk of assessing control too high?
If inherent risk (IR) is assessed as 0.90 and the detection risk (DR) implicit in an audit plan is 0.10, what audit risk (AR) is implied when the assessed level of control risk is each of 0.10, 0.50,
An advantage of statistical sampling is that it helps an auditora. Eliminate non-sampling risk.b. Reapply evaluation judgments based on factors in addition to the sample evidence.c. Be precise and
The risk of incorrect acceptance in balance audit sampling and the risk of assessing control risk too low in test of controls sampling both relate to which of the following?a. Effectiveness of an
Stefani audited the client’s accounts receivable, but she could not get any good information about customer 102’s balance. The customer responded to the confirmation, saying, “Our system does
When calculating the total amount of misstatement relevant to the analysis of an account balance, an auditor should add which of the following to the misstatement discovered in individually
Which of the following should be considered an audit procedure for obtaining evidence?a. An audit sampling application in accounts receivable selectionb. Existence and proper valuation of the
Nelson next considered the sample size needed for a selection of customers’ accounts receivable for the substantive audit of the total accounts receivable. He presented the following information
Nelson Williams was considering the sample size needed for a selection of sales invoices for the test of controls audit of the LoHo Company’s internal controls. He presented the following
When auditing the client’s performance of control for the completeness objective related to recording sales, auditors should draw sample items from which of the following?a. A sales journal list of
Why does the efficiency risk affect audit efficiency and the effectiveness risk affect audit effectiveness?
Explain why control risk is inversely related to the risk of incorrect acceptance.
Why can poor controls over the existence of sales result in an overstated accounts receivable balance at year-end?
What two types of audit programs are ordinarily used as written plans for audit procedures?
Are auditors more likely to be sued successfully for sampling risk or for non-sampling risk?
Can non-sampling risk be avoided? Explain.
Can sampling risk be avoided? Explain.
Define sampling risk.
Why can a non-representative test not be done statistically?
Are testing, partial examination, and sampling the same thing? Explain your response.
What three choices are available to the auditor for deciding on the extent of audit procedures?
Give three reasons why auditors may choose to use sampling.
List audit procedures likely to be applied on a sample basis.
Give examples of auditing procedures that are not sampling applications.
How does sampling relate to forming an audit opinion on financial statements?
How does audit assurance relate to audit risk?
How do sampling risks relate to the overall audit objective of providing assurance on information?
How do auditors control non-sampling risk?
What is non-sampling risk?
How do auditors control sampling risk?
Which sampling risk is the most important in auditing and why?
What is the fundamental difference between statistical and non-statistical sampling?
What is the essential difference between representative and non-representative testing?
Why do auditors use the sampling concept as part of their testing procedure?
What are some limitations of using GAS?
What are five audit procedures that can be performed with GAS?
What are some advantages of using GAS?
Why is it important that data selected for parallel simulation tests are representative? How can the audit team determine if the data are representative?
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