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Unformatted text preview: organization, the sheer volume of transactions, which might well reach into the millions, prevents the auditor from examining every transaction. Thus, just as with a house inspection, there is a trade-off
between the exactness or precision of the audit and its cost.
To deal with the problem of not being able to examine every transaction, the auditor uses (1) his or her knowledge about the transactions and/or
(2) a sampling approach to examine a subset of the transactions. Many times the
auditor is aware of items in an account balance that are more likely to contain
misstatements based on previous audits, understanding of the client’s internal
control system, or knowledge of the client’s industry. For example, the auditor’s
prior knowledge may indicate that transactions with certain types of customers
are more likely to contain misstatements. The auditor can use this knowledge
to speciﬁcally select those transactions (e.g., speciﬁc accounts receivable) for
examination. When the auditor has no special knowledge about which pa...
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