Podcast
Questions and Answers
Which factor does NOT affect the judgment of applying the materiality concept in auditing?
Which factor does NOT affect the judgment of applying the materiality concept in auditing?
- The nature of the audit evidence
- The auditor's experience and knowledge
- The characteristics of the sample size (correct)
- The significance of the financial statement item
Which sampling method is most likely to provide a statistically valid conclusion about the audit findings?
Which sampling method is most likely to provide a statistically valid conclusion about the audit findings?
- Judgmental sampling
- Statistical sampling (correct)
- Convenience sampling
- Non-statistical sampling
What is NOT considered a type of audit evidence?
What is NOT considered a type of audit evidence?
- Physical observations
- Electronic communications
- Documentary evidence
- Theoretical conclusions (correct)
Which of the following is a risk associated with the purchase and payment cycle?
Which of the following is a risk associated with the purchase and payment cycle?
When can confidential information in audit documentation be disclosed?
When can confidential information in audit documentation be disclosed?
Flashcards
Materiality
Materiality
Information considered significant enough to influence financial statement users' decisions.
Audit Sampling
Audit Sampling
Selecting a representative portion of a population to draw conclusions about the whole.
Audit Evidence
Audit Evidence
Information gathered by the auditor to support their opinion on financial statement accuracy.
Analytical Procedures
Analytical Procedures
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Internal Control of Purchases
Internal Control of Purchases
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Study Notes
Materiality (Topic 8)
- Materiality refers to information that is important or significant enough to influence the decisions of users of financial statements.
- Applying the materiality concept can be challenging due to subjectivity.
- Factors influencing the judgment of materiality include: -Size of the item relative to the overall financial statements. -Nature of the item. -Circumstances surrounding the item.
Audit Sampling (Topic 9)
- Audit sampling involves selecting a portion of a population to form a representative sample to make inferences about the entire population.
- The sample must be deemed material to ensure trustworthiness of conclusions.
Statistical vs. Non-Statistical Sampling
| Feature | Statistical Sampling | Non-Statistical Sampling |
|---|---|---|
| Methodology | Uses probability theory and sample selection methods | Relies on the auditor's judgment and experience |
| Objectivity | More objective and quantifiable | Can be more subjective and less quantifiable |
| Precision | Allows for quantification of sampling risk | Sampling risk is less easily measured |
| Efficiency | Often more efficient and can lead to more reasonable sample sizes | Potentially less efficient |
| Use in situations | Appropriate if the population is large and there are strong reasons to believe it is representative | Ideal in certain situations such as limited resources |
- Sampling can affect reliability and validity of audit findings. Auditors use sample conclusions to infer the fairness of the entire population.
Audit Evidence (Topic 10)
- Audit evidence is all the information used by the auditor in arriving at conclusions on which the audit opinion is based.
- Evidence gathering is a reasoned process in forming audit conclusions.
- Types of audit evidence and their example procedures:
- Physical examination: Inspecting inventory, observing operations
- Confirmation: Confirming account balances with an external party, sending confirmations to customers(Accounts receivable)
- Inspection of documents: Examining invoices, contracts
- Analytical procedures: Identifying unusual fluctuations or relationships.
- Inquiry: Questioning management, employees
- Recalculation: Verifying mathematical accuracy
- Reperformance: Independently executing a control task
Audit Documentation (Topic 11)
- Audit documentation is the written record of the audit procedures performed, evidence obtained, and conclusions reached by the auditor.
- Confidential information can be disclosed with appropriate authorization.
- Supporting schedules provide details related to the financial statement accounts.
Purchase and Payment Cycle (Topic 13)
- Cash disbursements are often the most valuable asset in a business
- Internal controls in purchase process:
- Segregation of duties.
- Independent checks and authorizations.
- Substantive tests for purchase cycle include:
- Vendor confirmations.
- Observations of materials receiving in warehouse
- Existence of receiving reports
- Associated risk: Risk of double payment.
- Technology's impact on purchase and payment cycle is also a significant area to cover.
Payroll Cycle (Topic 14)
| Requirement 1 (Weakness) | Requirement 2 (Improvement) |
|---|
- Analytical procedures for payroll:
- Comparing the payroll expense for the current period with expenses of previous periods, and to budget, industry averages to identify unusual variances.
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Description
This quiz covers essential concepts of materiality and audit sampling in accounting. Explore how materiality impacts financial statements and the methodologies behind statistical and non-statistical sampling. Assess your understanding of these critical topics in the audit process.
