Chapter 17 Audit Sampling for Tests of Details of Balances Accounts Receivable

1. Chapter 17 Audit Sampling for Tests of Details of Balances Accounts Receivable

2. David Tests of Controls What do they measure The operating effectiveness of internal controls

3. The introduction … when all the confirmation replies were received or alternate procedures were completed ….. Bob called Barbara to do some statistical evaluation.

4. Julian Substantive Tests of Balances What do Substantive Tests measure calculate the dollar misstatements in account balances

5. Sampling Methods Non statistical sampling Statistical sampling monetary unit sampling variables sampling difference estimation ratio estimation Mean-per-Unit

6. Page 413 Test of Details - sampling Objective ---- derived from management assertions Define a misstatement “ population “ sampling unit Specify tolerable misstatement ---- a dollar amount risk of incorrect acceptance βeta risk Determine sample size Select the sample Perform the procedure Project the sample results to the population

7. Test of Details - sampling Objective all recorded inventory exist as of 12/31 physical quantities on hand agree INV records costs used to value INV are correct Define misstatement incorrect cost or quantity population items in parts inventory sampling unit SKU or part number Specify tolerable misstatement $200,000 risk of incorrect acceptance 5% Determine sample size 387 Select the sample Perform the procedure Project the sample results to the population

8. Fabiola what is the audit risk model ?

9. Audit Risk Model

10. Nicholas M pretend GAAS requires AAR ≤ .05 Controls are effective, we assess CR as 0.03 Which audit approach will we take ?

11. Belen pretend GAAS requires AAR ≤ .05 Controls are effective, we assess CR as 0.03 We will take the Reduced Level of Control Risk Approach What is the required level of Detection Risk ?

12. Erynn pretend GAAS requires AAR ≤ .05 Controls are effective, not great but effective and we assess CR as 0.25 Which audit approach will we take?

13. Melissa O pretend GAAS requires AAR ≤ .05 Controls are effective, not great but effective and we assess CR as 0.25 We will take the RL of CR What is the required level of Detection Risk ?

14. Andrew F is Detection Risk risk of incorrect rejection Type I or  risk risk of incorrect acceptance Type II or  risk

16. Andrew K pretend GAAS requires AAR ≤ .05 Controls are ineffective, we assess CR as MAX Which audit approach are we going to take ?

17. Gavin pretend GAAS requires AAR ≤ .05 Controls are ineffective, we assess CR as MAX (1.00) We are taking the Primarily Substantive Approach What is the required level of Detection Risk ?

18.  type II  type I

20. Test of Details - sampling Project the sample results to the population you must project sample results to the population plus appropriate consideration for sampling risk

21. projected error + allowance for sampling risk must be less than tolerable error

22. Accept allowance for sampling risk cv

23. $1,110.32 C V Accept error allowance for sampling risk BV tolerable error $200,000 or $117.44

26. $1,110.32 C V Accept error allowance for sampling risk BV tolerable error $200,000 or $117.44

27. Test of Details - sampling Project the sample results to the population you must project sample results to the population appropriate consideration for sampling risk is the projected error too close to tolerable error How close is too close?

29. $1,110.32 C V Accept error allowance for sampling risk BV tolerable error $200,000 or $117.44

31. Let’s assume the sample mean was $1,094.09

32. $1,110.32 C V Accept error allowance for sampling risk BV tolerable error $200,000 or $117.44

34. Nathan Which assertions relate to Inventory and Accounts Receivable?

35. Page 153

36. Valuation & allocation

37. Valuation & allocation

38. V&T what we did

39. Page 436-437 Difference Estimation

40. Page 420-29 MUS