AUDIT SAMPLING Question 1 Audit sampling is a technique for drawing conclusions about the characteristics of a population by testing a sample

drawn there from. Internal and external auditors use it for both tests of controls, and substantive testing. Required: Describe the following: (i) Judgement sampling and statistical sampling; (ii) A representative sample; (iii) Tolerable error; (iv) Two different methods of selecting a representative sample; (v) The extrapolation of errors. NB: Parts (i) (v) carry equal marks. Question 2 You have been asked by your firm to examine the payment vouchers of a company to establish the level of errors and then decide whether better results can be obtained through statistical techniques. Required: a) b) c) State the steps you would take in order to test the vouchers for the errors. Why is it not satisfactory to pick vouchers from a limited period? State under what circumstances statistical sampling is a good technique.

Question 3 During the course of an audit, the auditor attempts to obtain sufficient relevant and reliable evidence to provide the satisfaction that the financial records are completed and accurate. One of the ways that the auditor obtains satisfaction is to select representative samples of transactions and balances for detailed testing, such samples being made using either statistical of nonstatistical methods. Required:

a) Describe the main factors which influence the auditor in determining the size of the sample he will use for his detailed testing. b) Describe three areas where the judgment will be exercised by the auditor when using statistical sampling. SUBSTANTIVE TESTING Question 1 b) Identify the circumstances when it is appropriate to use only a substantive approach in an audit and when a combination of compliance and substantive tests should be used.

(c)

List four advantages and four disadvantages of using the risk-based audit approach when auditing the financial statements of limited companies Question 2 a) Briefly explain the meaning of the term control procedures. b) What is the importance of segregation of duties as a control procedure? c) In carrying out an audit, the auditor appraises the tests and the system of internal control in order to ascertain that it is capable of processing transactions or determining the quantities and values completely and accurately. The auditor further carries out substantive tests in an attempt to ensure that the transactions, assets and liabilities recorded in the accounting records upon which the figures in the financial statements are based, are completely and accurately recorded. Required List and briefly explain the substantive tests the auditor would carry out to verify the values attributed to: (i) (ii) Trade and debtors in a companys financial statements. (ii)Trade creditors in a companys financial statements.

COMPUTER INFORMATION SYSTEMS Question 1 Most errors in computer based accounting systems can be traced to faulty input. Controls over the completeness and validity of all inputs are vital. Control over data conversions, controls over rejections and their correction and reprocessing, batch controls and computer edit controls affect both completeness and validity. Required: a) Explain the controls that can be established over completeness of input.

b) c)

What controls can be established over validity? Programmed edit checks are probably the most familiar input controls and certainly the most effective. Give examples of these controls bringing out clearly: i. The name of the edit control. ii. Description of the control. iii. The objective of the control. Question 2 a) In the context of a computer based accounting system, explain the meaning of the following terms: i) ii) Application controls General controls

b) State six examples of controls to prevent unauthorised changes to data files that you would expect to find in a new computer based accounting system c) A company wishes to change from an old computerised system to a new computer based accounting system. Explain how and why both systems should run parallel prior to the change over the new system AUDIT REPORT Question 1 a) State the basic element of the scope paragraph of an audit report. b) Explain how auditors distinguish their responsibility from those of the directors in respect of financial statements. c) Explain the meaning of each of the following terms in relation to audit reports: i. Circumstances of uncertainty. d) Circumstances of disagreement. e) Distinguish between the except for and the subject to audit opinions. Question 2 (a) (b) What is the purpose of an audit report? List six contents of an unqualified audit report

(c) Identify and briefly explain four situations under which an auditor would consider qualification of his audit report. (d) Explain the meaning of the following terms in relation to audit reports. (i) (ii) Limitation in the scope of the audit. Emphasis of matter