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CHAPTER 11 - Coggle Diagram

- - - - Nature & cause of the error
      - Whether error is one-off (anomalous) or a recurrent error
      - Whether error affects audit procedure
      - Whether error affects other areas of the audit
  - - - Then compare this to the level of tolerable misstatement
      - If errors are anomaly, should be excluded
        
        But need to be considered in overall non-anomalous errors
- - - - Therefore, need to determine appropriate sample size
  - - - Detection risk need to be low
        
        Sampling risk needs to be low
        
        Sample size needs to be larger
    - - How confident auditor needs to be that the sample results are representative
        
        The greater the degree of confidence the auditor requires, the larger the sample size needs to be
    - - Level of error auditor expects to find
        
        The higher the level of expected error, the larger the sampling size
    - - The lower the level of tolerable error that can be accepted, the larger the sampling size
- - - - So must decide on the extend of testing they will perform
  - - - More common for substantive procedure than TOC
        
        Appropriate for
        
        Small number with high value
        
        Other means do not provide sufficient appropriate audit evidence
        
        Repetitive calculations performed using automated tools & techniques
    - - Not sampling as cannot be projected to the entire population
        
        Appropriate for
        
        High value / key items
        
        Suspicious
        
        Prone to errors
        
        Risky
        
        All items over certain amount
        
        Items to obtain information eg nature
        
        Stratification
- - - - Mathematical number tables to choose a sample which is free from bias
      - Probability theory to evaluate the results of testing
      - Types
        
        Random
        
        Equal selection
        
        Systematic
        
        Constant intervals bet. selection
        
        First interval having a random start
        
        Value weighted selection (MUS)
        
        Weighting the items in proportion to their value
    - - Does not use use any mathematical sampling for selecting
      - Types
        
        Haphazard selection
        
        Without following a structured technique
        
        Avoids any conscious bias / predictability
        
        Block selection
        
        Used to check whether certain items have particular characteristics
        
        Eg. a sample of 50 consecutive cheques rather than picking 50 single cheque throught the year
        
        However, may produce samples that are not representative of the population as a whole
        
        Errors occurred during a certain part of the period
  - - - Sampling risk can be measured & controlled
      - Meaningful extrapolation can occur
    - - Sampling risk cannot be measured
      - Meaningful extrapolation cannot occur
- - - - Which can be held by modern computers
  - - - To identify trends, patterns, correlations
      - However
        
        Significant cost
        
        Extensive training
      - Allow auditor to focus immediately on the rikiest areas
      - May render sampling unnecessary in the future
- - - - Audit software
        
        Used for substantive procedures
        
        Generalised audit software
        
        Custom audit software
        
        Written audit software for specific tasks
        
        Generalised audit software cannot be used
      - Test data
        
        Used for test of control
        
        Entering data into entity's computer system then compare it with pre-determined results
        
        Two typical uses
        
        Test specific controls in computer programs
        
        For example, testing password
        
        Test transactions
        
        Can be conducted
        
        Live (computer systems are operational)
        
        Dead (not in business use)
        
        Some computer system
        
        Have an embedded test facility
        
        Enables a continuous review of a client’s computerized accounting system to be made
        
        Comprise of dummy unit