Balance by performing a detailed analysis of items

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balance by performing a detailed analysis of items making up  the account balance and to estimate some amount  b. Define a misstatement Misstatement is usually defined as a difference that  affects the correctness of the overall account balance c. Define the population from which the sample is to be taken;  Define the sampling unit: are the individual auditable elements and  often are made up of individual account balances Assure completeness of the population
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Tools to gather audit evidence 15:19 Identify individually significant items: examine all the large-dollar  items: the large-dollar items are often referred to as the top stratum;  the remaining items (low stratum) are then sampled using one of  the sampling methods. Stratification  is the division of the population into two or  more subgroups d. Choose an appropriate sampling method e. Determine the sample size f. Select the sample g. Audit the selected items h. Evaluate the sample results, including the projection of  misstatements to the population Tolerable misstatement: represents the maximum amount of  misstatement the auditor can accept in the population without  requiring an audit adjustment or a qualified audit opinion Expected misstatement is based on projected misstatements in  prior-year audits, results of other substantive tests, audit judgment  and knowledge of changes in personnel and the accounting system i. Document the sampling procedure and results obtained  o Nonstatistical sampling o No mathematical control for sampling risk o Auditor can project only detected misstatements  Test all significant items Select a sample that is representative of the population Evaluate the sampling results  Using generalized audit software Analytical procedures as substantive tests Assumptions underlying analytics o Financial information for equivalent prior periods is comparable o Expected or planned results developed from budgets or forecasts can  be compared to actual o Comparisons can be made of linked account relationships o Ratio can be analyzed o Company and industry trends should be considered o Analysis should be done of relevant non-financial information   Effectiveness of substantive analytics o Depends on the nature of the assertion being tested o Plausibility and predictability of relationships o Availability and reliability of data
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Tools to gather audit evidence 15:19 o Precision of the expectation the auditor develops In performing analytical procedures as a substantive audit  procedure the auditor must have already concluded positively about:
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