2009 A-5 Class Notes

2009 A-5 Class Notes - Becker CPA Review Auditing 5 Class...

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Becker CPA Review – Auditing 5 Class Notes 1 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. AUDITING 5 CLASS NOTES Auditing 5 covers statistical sampling, information technology, internal control communications, government auditing, communication with those charged with governance, and management representations. I. AUDITING 5 A. AUDIT SAMPLING 1. Audit sampling occurs when the auditor tests less than 100% of the items in a population and tries to draw conclusions about the population based on the sample. 2. Sampling risk is the risk that the sample is not representative of the population, and therefore the auditor's conclusion will be incorrect. 3. Sampling can be either statistical or nonstatistical. a. Either method is acceptable. b. Statistical methods rely on mathematical concepts. c. Both methods involve the use of judgment. 4. Be familiar with the advantages of statistical sampling. B. TYPES OF SAMPLING AND SAMPLING RISK 1. Attribute Sampling used to estimate a rate of occurrence. Attribute sampling is used in tests of controls . Sampling risk associated with attribute sampling includes: a. Risk of assessing control risk too low (1) The sample indicates the control is working when in fact, it is not. (2) The auditor will erroneously rely on the control. (3) This is an effectiveness problem. b. Risk of assessing control risk too high (1) The sample indicates the control is not working when in fact, it is. (2) The auditor will erroneously extend audit work. (3) This is an efficiency problem – the auditor will do more work than is necessary. 2. Variables Sampling – used to estimate a numerical quantity. Variables sampling is used in substantive testing . Sampling risk associated with variables sampling includes: a. Risk of incorrect acceptance (1) The sample indicates the balance is fairly stated when in fact, it is not. (2) The auditor will erroneously fail to modify his/her opinion. (3) This is an effectiveness problem.
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Becker CPA Review – Auditing 5 Class Notes 2 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. b. Risk of incorrect rejection (1) The sample indicates the balance is not fairly stated when in fact, it is fairly stated. (2) The auditor will erroneously modify his/her opinion. (3) This is an efficiency problem – the auditor will do more work than is necessary. 3. The same sample may be used to perform both tests of controls and tests of details. This is called a "dual-purpose sample." 4. Qualitative aspects of deviations and errors should be considered – fraud is of greater concern than an honest error. C. ATTRIBUTE SAMPLING (INTERNAL CONTROL) 1. Know the definitions of the following terms: a. Sample deviation rate – error rate in the sample b. Tolerable deviation rate – rate the auditor can accept c. Expected deviation rate – the auditor's estimated error rate (before sampling) d. Upper deviation rate – high end of range for auditor's estimate of error rate
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2009 A-5 Class Notes - Becker CPA Review Auditing 5 Class...

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