Exam 8: Audit Sampling: An Overview and Application to Tests of Controls

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Indicate which of the following audit procedures, used as tests of controls, do not involve audit sampling. 1. Observing and evaluating segregation of duties. 2. Testing of whether sales invoices are supported by authorized customer orders and shipping documents. 3. Reviewing entity's procedures for accounting for the numerical sequence of shipping documents. 4. Examining sales orders for proper credit approval. 5. Recomputing the information on copies of sales invoices. 6. Comparing the average days outstanding in accounts receivable with industry averages.

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Question 61

When performing a test of controls with respect to control over cash receipts, an auditor may use a systematic sampling technique with a start at any randomly selected item. The biggest disadvantage of this type of sampling is that the items in the population

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Question 62

Why must an auditor use sampling? What tradeoffs occur when an auditor uses sampling?

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Question 63

For a large population of cash disbursement transactions, Smith, CPA is testing controls by using attribute sampling techniques. Anticipating an expected deviation rate of 3 percent, Smith found from a table that the required sample size is 400 with a tolerable deviation rate of 5 percent and a desired confidence level of 95 percent. If Smith anticipated an expected deviation rate of only 2 percent but wanted to maintain the same tolerable deviation rate and confidence level, the sample size would be closest to

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Question 64

A Type II error is the risk of incorrect acceptance.

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Question 65

For attributes sampling, of the three factors that enter into sample size determination, which two factors can the auditor adjust to reflect the importance of the control?

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Question 66

Define Type I and Type II errors.

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Question 67

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When performing a test of controls with respect to control over cash receipts, an auditor may use a systematic sampling technique with a start at any randomly selected item. The biggest disadvantage of this type of sampling is that the items in the population

Why must an auditor use sampling? What tradeoffs occur when an auditor uses sampling?

A Type II error is the risk of incorrect acceptance.

For attributes sampling, of the three factors that enter into sample size determination, which two factors can the auditor adjust to reflect the importance of the control?

Define Type I and Type II errors.

An Introduction to Assurance and Financial Statement Auditing

The Financial Statement Auditing Environment

Audit Planning, Types of Audit Tests, and Materiality

Risk Assessment

Evidence and Documentation

Internal Control in a Financial Statement Audit

Auditing Internal Control Over Financial Reporting

Audit Sampling: An Application to Substantive Tests of Account Balances

Auditing the Revenue Process

Auditing the Purchasing Process

Auditing the Human Resource Management Process

Auditing the Inventory Management Process

Auditing the Financing Investing Process: Prepaid Expenses Intangible Assets and Property Plant and Equipment

Auditing the Financing Investing Process: Long-Term Liabilities Stockholders Equity and Income Statement Accounts

Auditing the Financinginvesting Process: Cash and Investments

Completing the Audit Engagement

Reports on Audited Financial Statements

Professional Conduct, Independence, and Quality Control

Legal Liability

Assurance, Attestation, and Internal Auditing Services

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