Lecture 8 - Advanced Auditing

Purpose of controls testing?

Evaluate whether controls operate effectively.

Purpose of substantive testing?

Detect material misstatements.

What determines whether to perform tests of controls?

If controls are effective and reliance is planned.

What determines whether SAPs can be used?

Precision, reliability, efficiency.

What are the two dimensions of audit evidence?

Sufficiency (quantity) and appropriateness (quality).

What determines reliability?

Independence, objectivity, auditor knowledge, qualifications, internal control strength.

What are the key assertions?

Existence, completeness, valuation, rights, cut-off, classification, presentation.

When should auditors test full population?

When efficient or required (e.g., data analytics).

Difference between statistical and non-statistical sampling?

Statistical uses random selection + probability theory; non-statistical does not.

Name sampling selection methods.

Random, systematic, block, haphazard, stratified, judgmental.

What is attribute sampling?

Yes/no control testing.

Tolerable deviation rate?

Maximum control failure rate auditor is willing to accept.

Acceptable risk of overreliance (ARO)?

Risk auditor relies on a control that is ineffective.

What does UDL > TDR mean?

→ Control ineffective → increase control risk.

Purpose of MUS?

Detect monetary misstatements (overstatement focus).

What is the sampling unit in MUS?

Each individual monetary unit (e.g., each €1).

How is sample size calculated?

n = R / (TEL / BV).

What is tainting factor?

(Book value – audited value) / book value.

What is Upper Error Limit (UEL)?

Total projected misstatement + sampling risk allowances.

Decision rule for MUS?

UEL ≤ TEL → accept; UEL > TEL → reject.

What if UEL > TEL?

Increase sample, adjust account, test more items, or have client review.