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Chapter 17 - Answer PDF
Chapter 17 - Answer PDF
AUDITSAMPLINGFORTESTSOFCONTROLS
Questions
1.
2.
3.
Objective
Example
1.
Validity
1.
2.
Authorization
2.
3.
Accuracy
3.
4.
Classification
4.
5.
Proper Period
5.
6.
Accounting
6.
7.
Completeness
7.
Acceptable risk of
17-2
2.
Acceptable risk of
assessing control risk
too high
Inverse.
3.
Tolerable deviation
rate
Inverse.
4.
Expected population
deviation rate (an
estimate rather than a
judgment)
Direct.
The sample size is also directly related to the population size, although the
influence is generally minor. The larger the population, the larger the sample,
but not much.
4.
The risk of assessing the control risk too low has the potential of affecting audit
effectiveness, thus damaging the quality of the audit for users. Professionally,
in light of responsibility to users, effectiveness is more important than efficiency,
which is affected by the risk of assessing the control risk too high.
5.
.048
1.0 x .4 x .6
.2
The connection is a direct relationship between control risk and the tolerable
deviation rate. (1) When larger values are planned for control risk (say, 0.95,
0.90) in an audit plan, more analytical procedure and test of detail work will be
done. Auditors will not rely very much on internal controls. Therefore, not
much help is expected from the controls anyway, so the tolerable deviation rate
can be larger. The direct relation is: The higher the control risk, the higher the
tolerable deviation rate can be. (2) When lower values are assigned to control
risk (say, 0.10, 0.20) in an audit plan, less analytical procedure and test of detail
work will be done. Auditors intend to rely on internal accounting controls.
Therefore, effective compliance with control policies and procedures is
important, and the tolerable deviation rate ought to be low. The direct relation
17-3
is: The higher the planned control risk, the higher the tolerable deviation rate
can be.
7.
Based on the specifications of risk of assessing control risk too low, tolerable
deviation rate and expected population deviation rate, sample sizes would be
determined independently for the two populations in the subdivision. If the
criteria are at least as stringent for each of the two as they would be for the
undivided population, the sum of the two sample sizes would be at least twice
the size of the sample figured for the single population (provided both
subdivided populations have 1,000 or more units).
8.
Further reduction of the assessed level of control risk is justified only when the
upper occurrence limit is <= the tolerable occurrence rate. Recall that the
tolerable occurrence rate is that rate of error beyond which the auditor cannot
justify further reduction in the assessed level of control risk. A calculated rate
which exceeds the tolerable rate, therefore, would suggest a level of error which
precludes any lowering of assessed control risk.
9.
10. Inherent risk is the risk that, in the absence of internal control, material errors or
irregularities will occur.
Control risk is the risk that internal financial control policies and procedures will
fail to prevent or detect material errors and irregularities.
Detection risk is the risk that material errors and irregularities, which are not
prevented or detected by internal financial control policies and procedures, will
not be detected by the independent audit.
Multiple Choice Questions
1.
2.
d
b
6.
7.
a
a
11. b
12. d
16. d
17. d
21. d
22. c
17-4
3.
4.
5.
Cases
1.
2.
8. b
9. c
10. b
13. c
14. a
15. b
18. b
19. d
20. b
a.
b.
1.
2.
a.
3.
17-5
Inverse effect.
b.
How determined:
2. Prior years audit; initial understanding of internal control; pilot
sample.
3. Materiality;
4. Materiality (but normally not to exceed 10%).
a.
b.