Exam 6: Gaining an Understanding of the Clients System of Internal Controls

Lucy Pelletier was training a team of new auditors and delivered some interesting rules of thumb about control risk and detection risk: "The required level of confidence is a function of control risk when testing controls and detection risk when conducting substantive tests." "When detection risk is determined to be low, an auditor will require a low level of confidence that the transactions and accounts are not materially misstated. Which of the above two statements are true?

Oliver DiPietro was testing the controls of Blue Coast Wholesale Fish Market. When testing controls, which one of the following evidence gathering procedures is used?

When testing controls, sampling risk is the risk that the auditor:

When conducting detailed substantive procedures, auditors search for evidence that:

Richard Nucci used analytical procedures at his client, Ultimate Vacations. Which one of these is not an analytical procedure?

Walter Polonia was explaining to his junior staff the implications of sampling risk when conducting substantive testing. He made the following two statements: "If we conclude that a material misstatement does not exist when it does, then we have an increased control risk." "If we conclude that a material misstatement exists when it does not we have an inefficient audit." Which statements, if any, were true?

Which of the following is not an advantage of non-statistical sampling?

When testing controls, non-sampling risk is the risk that an auditor:

Which sampling method involves the selection of items that are grouped together within the population of items available?

Sampling is not required when:

Ricky Alfaro wanted to ensure that all the transactions at his client were recorded. For which assertion was he conducting these detailed substantive procedures?

Tests of controls are conducted to establish that:

Barry Menzies walked out of the Old Country Bakery operation and chewed on a Cheese Danish. He had chosen random selection to test for proper authorization of purchasing transactions. He had just completed the initial audit testing of the purchasing transactions and had evaluated the results. His conclusion was that the deviation rate of 12 exceptions in a sample of 80 transactions was relatively high. In addition, Barry was preparing to start the audit of another client, Rohr Industries, an airplane component manufacturer. He had discussed sampling methodology with his audit team and it had been determined that the Rohr Industries systems did not lend themselves easily to statistical sampling techniques. The audit team would have to employ non-statistical sampling. Required: a) What is the procedure that Barry Menzies would follow when his initial testing showed a relatively high deviation rate for the Old Country Bakery transactions? b) What is non-statistical sampling? c) Describe the non-statistical sampling methods that were open to Barry and his team for the Rohr Industries audit. d) Which of Barry's two clients' systems would lend themselves to stratification?

What impact will there be on sample size when there is an increase in the number of sampling units in the population?

Which of the following statements regarding statistical sampling is correct?

Tests of controls are audit procedures designed to detect material misstatements at the assertion level.

What impact will there be on sample size for substantive testing when there is an increase in the tolerable misstatement?

If the total projected error in an account balance was $3,248 and the tolerable error was set at $10,000, the auditor would:

Identify and explain the factors that influence the sample size for tests of controls.

When conducting substantive testing, which of the following is not a factor that influences the sample size?