Professional Judgment

AA – L2 – Q3 – Audit Sampling

Differentiate between statistical and non-statistical sampling methods in auditing according to ISA 530. Explain the concepts of materiality and performance materiality in the context of an audit. Compare and contrast limited assurance and reasonable assurance engagements.

Question

a) ISA 530: Audit Sampling indicates that the decision to use statistical sampling or non-statistical sampling is a matter of professional judgment and does not indicate which should be used in any given situation. However, the standard is clear that sample size is not a valid criterion to distinguish between the selection of sampling methods. Therefore, the auditor should not base their decision on whether to use statistical or non-statistical sampling on the outcome of the calculation of sample sizes.

Required: Differentiate between statistical sampling and non-statistical sampling.

A core objective of an audit is to enhance the degree of confidence intended users can place in the financial statements. This is achieved through the expression of an opinion and is governed by key conceptual pillars. Central to this process are the concepts of materiality and the level of assurance provided.

Required: i) Explain the concept of materiality and performance materiality.

ii) Compare and contrast limited assurance and reasonable assurance.

Your client has outsourced their payroll processes to Azara Technologies (Azara), a payroll management company. You have asked the client how they are confident that the payroll that is processed is accurate and appropriate. They have indicated that Azara sends them the final payroll run for review before payment is done. They also mentioned they performed due diligence on Azara before contracting them and noted that they have other high-profile companies as clients and has a reputable audit firm as its Service Auditor who audits the payroll management service. Your client has shared with you the final approved payroll run for each month under review.

Required: State FIVE audit procedures to be performed on the payroll.

Answer

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Tags: Audit Sampling, ISA 530, judgemental sampling, non-statistical sampling, probability theory, Professional Judgment, sampling risk, Statistical Sampling
Level: Level 2

Topic: Audit Sampling and Other Selective Testing Procedures

AA – L2 – SA – Q5.3 – Materiality

Nature of materiality in auditing.

Question

Materiality is a matter of:

A Capacity

B Liquidity

C Profitability

D Judgment

Answer

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Tags: Audit Planning, ICAG, Materiality, Professional Judgment
Level: Level 2

Topic: Planning and Approach for Audit and Assurance Engagements

AA – L2 – Q63 – Audit Evidence

Discuss audit evidence for sales, returns, certificates, building costs, company size, and auditing standards' pros, cons, and statutory impact.

Question

(a)

(i) The file of copy credit sales invoices is the most pertinent evidence which the auditor can obtain of the credit sales figure in the accounts. Required: Explain why this is the case and discuss how the auditor would assess the validity of this evidence.

(ii) A mail order company invoices its customers with up to five ladies’ dresses. Most customers accept and pay for one or two dresses and return the rest. A credit note is then issued. The accounts incorporate a provision for returnable dresses at the year end. The audit is completed very quickly and subsequent events are not usable by the auditor as evidence. What evidence would the auditor regard as valid and pertinent in respect of the provision?

(iii) What factors would influence an auditor in considering the acceptability as evidence of certificates received from third parties?

(iv) A building contracting company has constructed an office block on its own land for its own use. State the evidence the auditor would require on the cost of the building.

(v) Discuss the different forms of audit evidence that would be available to auditors of very small companies and of very large companies.

(b) Discuss the advantages and disadvantages of auditing standards to auditors and the consequences of them being enforceable by statute.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Quality, Auditing Standards, Professional Judgment, Statutory Enforcement
Level: Level 2

Topic: Audit Evidence

Tag (SQ): Professional Judgment

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AA – L2 – Q3 – Audit Sampling

Differentiate between statistical and non-statistical sampling methods in auditing according to ISA 530. Explain the concepts of materiality and performance materiality in the context of an audit. Compare and contrast limited assurance and reasonable assurance engagements.

AA – L2 – SA – Q5.3 – Materiality

Nature of materiality in auditing.

AA – L2 – Q63 – Audit Evidence

Discuss audit evidence for sales, returns, certificates, building costs, company size, and auditing standards' pros, cons, and statutory impact.

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AA – L2 – Q3 – Audit Sampling

Differentiate between statistical and non-statistical sampling methods in auditing according to ISA 530. Explain the concepts of materiality and performance materiality in the context of an audit. Compare and contrast limited assurance and reasonable assurance engagements.

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AA – L2 – SA – Q5.3 – Materiality

Nature of materiality in auditing.

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AA – L2 – Q63 – Audit Evidence

Discuss audit evidence for sales, returns, certificates, building costs, company size, and auditing standards' pros, cons, and statutory impact.

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