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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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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 "dualpurpose 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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