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:star: ISA 500 Audit Evidence (Sampling (Sampling Risk The risk that…
:star:
ISA 500 Audit Evidence
Sampling
What is Sampling?
A sample is where any item could be chosen
Why Auditors use sampling?
Can't test all so a sample is taken
Sampling Risk
The risk that the wrong sample has been selected
Controls in place are more effective that they are in reality
Or
No misstatement exists when in fact it does
Type of error is a primary concern as could lead to an incorrect audit opinion
Controls are less effective than they are in reality
Or
A misstatement exists when in fact it does not
Type of error is slightly less concern however auditor would need to conduct more work
Non-Sampling Risk
Auditor reaches conclusion not related to sampling risk:
Based on judgement (ie materiality, what is relevant etc)
Type of Sample
Representative vs Selective
Representative
= same characteristics as the population as a whole
Selective
= focus on large or material items from a population
Statistical vs Judgemental
Statistical
= Random selection + use of probability theory
Judgemental
= Selection based on judgement (ie not random)
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ISA 530 - Audit Sampling
Ways of selecting sampling units (BRUSHS):
Random
- Random Numbers (Statistical)
Systematic
- Picking every th item (Statistical)
Monetary Unit Sampling
- all large numbers are selected (Statistical)
Haphazard
- no technique (Non- Statistical)
Block
- all items in last 5 days or first 5 days (month end) (Non- Statistical)
Stratified
- splitting population into separate groups (ie gender)
Interpretation of Results (the 4 E's)
Assess
E
rror rate
Nature and cause (
E
nquiry)
E
xtrapolate the results (estimate of misstatement within population)
E
valuate the results
Consider impact on Auditor opinion
Role of IT in Audit Sampling
Data Retrieval Software on auditors computer
Embedded Audit Modules on client computer
Sufficient
Quantitative
Do we have
enough
evidence?
Appropriate
Qualitative
Is the audit evidence
relevant
and
reliable
?
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ISA 580 - Written Representations
Sets out procedures that auditors should follow to obtain written confirmation of oral evidence
Techniques for gathering audit evidence
Number of techiques:
Inquiry (+ AEIOU)
+
A
nalytical Procedures
E
xternal Confirmation
I
nspection
O
bservation
U
do it (Recalculation & Reperformance)
:star: ISA 610 - Using the work of internal audit
External auditor has
sole responsibility
for the audit opinion :!:
External auditor should
determine quality
of the internal audit (the 3 q's):
Queenly :crown:
Qualified :smile:
Quality :star:
External Auditor must
evaluate
work of the internal audit work:
Work performed correctly?
Was there sufficient evidence?
Did they come to the right conclusion?
Audit Testing
Type of tests
Substantive Procedures
Test of Details
Designing:
Aim is to discover whether
financial statements are true and fair
, not whether the controls have operated correctly
It is the
transaction, event or balance
that is tested
Be specific about what auditors would actually
do
(use words like
inspect, observe or reperform
Analytical Procedures
Designing
Hard to be prescriptive
Key is to be specific about the two pieces of independent information you ar ecomparing and what might you expect to see
Reasonable Tests
most common analytical procedure
tests provide an independent check on the total value
most useful for income and expenditure accounts
Steps are as follows:
What is the acceptable variance?
Retrieve Data
Calculate
Compare
Consider Implications
Tests of Control
Designing:
Aim is to discover whether
control
has operated, not whether the output is correct
Be specific about what auditors would actually
do
(use words like
inspect, observe or reperform
Auditors are required to obtain evidence
over the assertions:
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