Audit Sampling and Substantive Procedures Flashcards

Flashcards covering key vocabulary related to audit sampling, tests of controls, and substantive audit procedures from the provided lecture notes.

Audit Sampling

The application of audit procedures to less than 100 per cent of the items within a population of audit relevance, where all units have the opportunity of being selected.

Objective of Audit Sampling

Provides the auditor with a reasonable basis to draw conclusions about the population from which the sample is selected.

Sampling Risk

The risk that the auditor's conclusion based on a sample may be different from the conclusion if the entire population were subjected to the same audit procedure.

Non-Sampling Risk

The risk that the auditor reaches an incorrect conclusion due to any reason not related to sampling risk.

Statistical Sampling Approach

Involves random selection of the sample items as well as mathematical evaluation of sample results, including quantification of sampling risk.

Non-Statistical Sampling

A sampling approach that does not involve both random selection and/or the use of probability theory to evaluate sample results.

Planning and Design (Sampling Phase)

Considering the objective of the audit test, the population from which to sample, the possible use of stratification, and the definition of the sampling unit.

Selecting (Sampling Phase)

Ensuring that the sample items that have been selected are expected to be representative of the population.

Testing (Sampling Phase)

Testing the sample, projecting the results of the tests performed on the sample to the population, and considering sampling risk.

Evaluating the Results (Sampling Phase)

Checking the results; the sample results for a substantive test would be a monetary misstatement, while the sample results for tests of controls is the deviation rate.

Stratification

Dividing a population into discrete subpopulations (strata), each of which is a group of sampling units that have an identifying characteristic (such as dollar value).

Sampling Unit

Individual items constituting a population.

Dollar-Unit Sampling (DUS)

Sampling units are individual dollars rather than each transaction or balance.

Key Issue in Auditing of Inventories

Ensuring that the inventories exist and are owned and properly valued.

Common Substantive Audit Procedure for Occurrence (Purchases)

Select transactions from purchases journal and agree to supporting documentation.

Common Substantive Audit Procedure for Completeness (Purchases)

Test from supporting documentation to purchases journal or subsidiary ledger.

Common Substantive Audit Procedure for Accuracy (Purchases)

Check dollar value of purchases to supporting documentation.

Common Substantive Audit Procedure for Cut-off (Purchases)

Check that last purchases recorded before balance date and first purchases recorded after balance date are recorded in the correct period.

Common Substantive Audit Procedure for Classification (Purchases)

Enquire and scan to determine that purchases are recorded correctly in accordance with the chart of accounts.

Common Substantive Audit Procedure for Presentation (Purchases)

Check that purchases and cost of goods sold are in accordance with the accounting framework.

Common Substantive Audit Procedure for Existence (Inventory)

Inspect physical inventory and undertake substantive analytical procedures.

Common Substantive Audit Procedure for Rights and Obligations (Inventory)

Enquire about legal ownership of goods being shipped to entity and any goods on consignment, and inspect supporting documentation.

Common Substantive Audit Procedure for Accuracy, Valuation and Allocation (Inventory)

Undertake tests of pricing and summarisation.

Dual-Purpose testing

Designed to provide direct evidence of both controls and substantive issues.

Use of CAATs

Increase audit effectiveness, enhance efficiency and help manage the audit risk.

Audit Software

Specialised computer program that performs a wide range of audit management functions such as calculations, sampling, duplicate transaction identification, data queries and statistical analysis.

Tests of Controls

Performed to obtain evidence regarding the effectiveness of the design and implementation of internal control policies and procedures.

Purpose of Performing Substantive Procedures

Provide direct evidence as to the fairness of financial report assertions.

Vouching

Establishing the authenticity of the transactions recorded in the books of accounts by inspecting the source documents or vouchers.

Tracing

Starting with the source document and trace the path of that document all the way to the transaction in the financial statements.