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Assurance

Professional Stage: Knowledge level


Evidence and Sampling (Chapter-11)
1 !hat are included in the evidence"
Evidence includes all the information contained within the accounting records underlying the
financial statements and other information gathered by the assurance provides such as
confirmations from third parties.
# !hat are the procedures followed to o$tain evidence"
Assurance provides obtain evidence by one or more of the following procedures:
Inspection of tangible assets;
Inspection of documentation;
Observation;
Inquiry;
Confirmation;
ecalculation;
e!performance; and
Analytical procedures.
% !hat is the o$&ective of audit evidence"
"he ob#ective of audit evidence:
"o enable the auditor to e$press an opinion whether the financial statements are prepared
in all material respects% in accordance with an identified financial reporting frame wor&;
and
"o enable the auditor to draw conclusions on which to base the audit opinion.
' !hat is CAA(" )escri$e it ela$oratel*
CAA(
Computer Assisted Audit "echniques is applications of auditing procedures using the computer as
on audit tool.
"here are two main types of it:
(est data:
"est data is a test of control where the assurance provider supervises the process of running
data through the clients system. "he stages in the use of test data are as follows:
a' (ote controls in clients system;
b' )ecide upon test data;
c' un the test data;
d' Compare results with e$pectations; and
e' Conclude on whether controls are operating properly.
Audit software:
Audit software means wor&ing on the basis of interrogating the clients system% e$tracting
and analy*ing information carrying out a whole range of substantive procedures across all
sorts of different data.
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E$amples of audit software are:
a' E$tract a sample according to specified criteria;
b' Calculate ratios of those outside criteria;
c' Chec& calculations performed by the system;
d' +repare reports; and
e' ,ollow items through a system and flag where they are posted.
+ !hat factors should $e considered while using anal*tical procedures"
"here are a number of factors that the auditors should consider when using analytical procedures
as substantive procedures:
Ob#ective of the analytical procedures;
-uitability of analytical procedures; and
eliability of analytical procedures.
, !hat is suita$ilit* factor of anal*tical procedures"
-uitability factor of analytical procedures are:s
.ateriality of the items involved assessment; and
Other audit procedures directed towards the same financial statements assertions.
- !hat are relia$ilit* factors of anal*tical procedure"
eliability factors of analytical procedure are:
"he degree to which information can be analy*ed;
"he availability of information;
"he accuracy of prediction;
"he frequency of observation;
"he relevance of the information;
"he source of the information;
"he comparability of information; and
"he &nowledge gained during previous audits.
. !hat are the possi$le sources of information a$out the client at the ris/ assessment stage"
"he possible sources of information about the client at the ris& assessment stage are:
Interim financial information;
/udgets;
.anagement accounts;
(on financial information;
/an& and cash records;
-ales ta$ returns;
/oard minutes; and
)iscussions and correspondence.
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0 !hat are the categories of su$ordinate procedures"
-ubordinate procedures can be fallen broadly into two categories:
"ests to discover errors; and
"ests to discover omissions.
"hese are called as directional testing.
11 !hat methods can $e applied to audit of accounting estimates"
,ollowing methods can be applied to audit of accounting estimates:
"est the process that management used to estimate the figure;
0se an independent estimates; and
0se subsequent events.
11 !hat is audit sampling and population"
Audit sampling
Audit sampling involves the application of audit procedures to less than 1223 of the items within
an account balance or class of transformation such that all sampling units have a chance selection.
Population
+opulation is the entire set of data from which a sample is selected and about which an auditor
wishes to draw conclusions.
1# !hat are the testing procedures do not involve in sampling"
,ollowing testing procedures do not involve in sampling:
"esting 1223 of items in a population; and
"esting all items with a certain characteristic.
1% )iscuss classes of sampling"
Statistical sampling
-tatistical sampling involves random selection of a sample using probability theory; including
measurement of sampling ris&.
2on-statistical sampling
(on statistical sampling is a sampling where mathematical techniques are not used continuously;
in determining sample si*e% selecting the sample or evaluating sample results.
1' !hat are errors3 e4pected error and sampling units"
Errors
Errors mean either control deviations% when performing tests of control or misstatements when
performing substantive procedures.

E4pected error
E$pected error is the error that the auditor e$pects to be present in the population.
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Sampling units
-ampling units are the individual items constituting a population.
1+ !hat is tolera$le error"

"olerable error is the ma$imum error in the population that the auditor would be willing to accept.
1, !hat are the methods of selecting sample"

"here are a number of selection methods:

5andom selection (5S)
andom selection ensures that all items in the population have an equal chance of selection.
S*stematic selection (SS)
-ystematic selection involves selecting items using a constant interval but not selections.
6apha7ard selection (6S)
4apha*ard selection may be an alternative to random selection.

Se8uence or $loc/ selection (S9S)
-/- may be used to chec& whether certain items have particulars characteristics.
"o follow -/-% an auditor may wish to sample 52 consecutive cheques to chec& whether cheques
are signed by authori*ed signatories rather than pic&ing 52 single cheques.
:onetar* unit sampling (:;S)
.0- is a selection method that ensures that every /)" 1 in a population has an equal chance of
being selected for testing.
(he End
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