6/4/24, 7:00 PM Question 1 of 10 - Chapter 6: WileyPLUS Assignment

Chapter 6: WileyPLUS Assignment

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 Your answer is correct.

Match the appropriate terms from the list provided to the definitions.

Definitions: List of terms:

1. The risk that the sample chosen by the auditor is not representative of the population available Sampling Risk
for testing and, as a consequence, the auditor arrives at an inappropriate conclusion.

2. The application of audit procedures to less than 100 percent of items within a population. Audit Sampling

3. An approach to sampling where random selection is used to select a sample and probability Statistical Sampling
theory is used to evaluate the sample results.

4. The risk that the auditor reaches an inappropriate conclusion for any reason not related to Non-Sampling Risk
sampling risk.

5. Details of the audit procedures to be used when testing controls and when conducting detailed Audit Plan
substantive procedures.

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6/4/24, 7:15 PM Question 2 of 10 - Chapter 6: WileyPLUS Assignment

Chapter 6: WileyPLUS Assignment

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Answer the following questions.

(a)

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What is the result if an auditor places too much reliance on an ineffective system of internal controls?

Auditor will not rely on the controls and will perform substantive testing instead
Auditor may provide an inappropriate audit opinion
Auditor will determine controls are ineffective
Auditor will perform more testing than required

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(b)

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What is the result if an auditor does not rely on an effective system of internal controls?

Auditor will perform an inefficient audit

Auditor may provide an inappropriate audit opinion
Auditor will rely on the controls and perform less substantive testing instead
Auditor will perform less testing than required

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(c)

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It is more serious to place an ______ on internal controls, as this exposes the auditor to a greater risk of an ______ audit.

Overreliance; inefficient
Under-reliance; ineffective
Overreliance; ineffective
Under-reliance; inefficient

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6/4/24, 8:41 PM Question 3 of 10 - Chapter 6: WileyPLUS Assignment

Chapter 6: WileyPLUS Assignment

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Match the sampling risks to the appropriate implications for the audit.

Sampling Risk Implications

The risk that the auditor concludes that the An increase in the risk that the auditor will issue an inappropriate audit conclusion
client’s system of internal controls is effective
when it is ineffective.

The risk that the auditor concludes that the An increase in audit effort when not required (inefficient)
client’s system of internal controls is
ineffective when it is effective.

The risk that the auditor concludes that a An increase in the risk that the auditor will issue an inappropriate audit conclusion
material misstatement does not exist when it
does.

The risk that the auditor concludes that a An increase in audit effort when not required (inefficient)
material misstatement exists when it does not.

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Sampling risk when testing controls

Sampling Risk=The risk that the auditor concludes that the client’s system of internal controls is effective when it is ineffective

Implications for the Audit=An increased audit risk (that is, the risk that the auditor will issue an inappropriate audit conclusion)

Sampling Risk=The risk that the auditor concludes that the client’s system of internal controls is ineffective when it is effective

Implications for the Audit=An increase in audit effort when not required (that is, there is a risk that the audit will be inefficient)

Sampling risk when conducting substantive tests

Sampling Risk=The risk that the auditor concludes that a material misstatement does not exist when it does

Implications for the Audit=An increased audit risk (that is, the risk that the auditor will issue an inappropriate audit conclusion)

Sampling Risk=The risk that the auditor concludes that a material misstatement exists when it does not

Implications for the Audit= An increase in audit effort when not required (that is, there is a risk that the audit will be inefficient)

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6/4/24, 8:51 PM Question 4 of 10 - Chapter 6: WileyPLUS Assignment

Chapter 6: WileyPLUS Assignment

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From the dropdown menu, select the appropriate sampling technique that corresponds with the description provided.

Description Sampling Technique

A sample is selected free from bias and each item in a population has an equal chance of selection. Random Selection

Selection of a sample for testing by dividing the number of items in a population by the sample size, Systematic Selection
giving the sampling interval (n) and then selecting every nth item in the population.

Selection of a sample without use of a methodical technique. Haphazard Selection

Selection of items that are grouped together within the population of items available. Block Selection

Selection of items that an auditor believes should be included in the sample for testing. Judgemental Selection

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6/4/24, 8:52 PM Question 5 of 10 - Chapter 6: WileyPLUS Assignment

Chapter 6: WileyPLUS Assignment

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From the dropdown menu, select the appropriate effect on sample size when testing controls given the factors provided.

Effect on Sample
Factor Size

An increase in the extent to which the auditor’s risk assessment takes into account relevant controls. Increase

An increase in the tolerable rate of deviation. Decrease

An increase in the expected rate of deviation of the population to be tested. Increase

An increase in the auditor’s desired level of assurance that the tolerable rate of deviation is not exceeded Increase
by the actual rate of deviation in the population.

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Factors that influence the sample size when testing controls

Source: CPA Canada Handbook – Assurance, CAS 530 Audit Sampling, App. 2.

Factor Effect on SampleSize

1. An increase in the extent to which the auditor’s risk assessment takes into account plans to test the operating effectiveness of controls Increase

2. An increase in the tolerable rate of deviation Decrease

3. An increase in the expected rate of deviation of the population to be tested Increase

4. An increase in the auditor’s desired level of assurance that the tolerable rate of deviation is not exceeded by the actual rate of deviation in the population Increase

5. An increase in the number of sampling units in the population Negligible

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6/4/24, 8:55 PM Question 6 of 10 - Chapter 6: WileyPLUS Assignment

Chapter 6: WileyPLUS Assignment

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From the dropdown menu, select the appropriate effect on sample size when testing transactions and balances given the factors
provided.

Factor Effect on Sample Size

An increase in the amount of misstatement the auditor expects to find in the population. Increase

Stratification of the population when appropriate. Decrease

The number of sampling units in the population. Negligible

An increase in the use of other substantive procedures directed at the same assertion. Decrease

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Factors that influence the sample size when testing transactions and balances

Source: CPA Canada Handbook – Assurance, CAS 530 Audit Sampling, App. 3.

Factor Effect on Sample

Size

1. An increase in the auditor’s assessment of the risk of material misstatement Increase

2. An increase in the use of other substantive procedures directed at the same assertion Decrease

3. An increase in the auditor’s desired level of assurance that tolerable misstatement is not exceeded by actual misstatement in the population Increase

4. An increase in tolerable misstatement Decrease

5. An increase in the amount of misstatement the auditor expects to find in the population Increase

6. Stratification of the population when appropriate Decrease

7. The number of sampling units in the population Negligible

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6/4/24, 9:11 PM Question 7 of 10 - Chapter 6: WileyPLUS Assignment

Chapter 6: WileyPLUS Assignment

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From the sampling information provided below, determine the projected error for each scenario independently and conclude on the
impact to materiality if performance materiality is set at $6,500. (Round answers to 0 decimal places, e.g. 5,275. Enter negative amounts
using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Scenario Error Sample Population Projected Error Impact

1 $(3,244) $43,100 $64,960 $ -4889 Below materiality

2 $4,500 $11,000 $19,000 $ 7773 Exceeds materiality

3 $2,721 $20,568 $52,456 $ 6940 Exceeds materiality

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Projecting Monetary Errors:

If sample is representative of population, project monetary errors in sample to population
First remove unique errors
Consider if sample stratified
$ Amount of Error
Projected Error $ Amount of Sample x $ Amount of Population
Ex: if sample size is $10,000 with errors totaling $100, what is the projected error for a
population of $500,000?
Projected Error = $100 $10,000 x $500,000 = $5,000 (or 1%)
Evaluate whether this projected error is tolerable (i.e. material)

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6/4/24, 9:18 PM Question 8 of 10 - Chapter 6: WileyPLUS Assignment

Chapter 6: WileyPLUS Assignment

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Using the following list of audit procedures and the table provided, classify each procedure as one to be used in tests of controls or
substantive testing.

List of procedures:

1. Receiving confirmation from the client’s bank regarding interest rates charged on amounts Substantive Testing
borrowed by the client during the accounting period.

2. Inspection of documents for evidence of authorization. Tests of Controls

3. Inspection of documents for evidence that details included have been checked by appropriate Tests of Controls
client personnel.

4. Inspecting suppliers’ invoices to verify amounts purchased. Substantive Testing

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Tests of controls are conducted to establish that controls:

operate effectively, meaning that the rate of deviation from prescribed control procedures is minimized and controls effectively prevent and detect material misstatements
operate consistently throughout the accounting period
Remember that the main evidence-gathering procedures used by an auditor include inspection, observation, inquiry, confirmation, recalculation, re-performance, and
analytical procedures. When testing controls, the procedures commonly used include:

inspection of documents for evidence of authorization

inspection of documents for evidence that details included have been checked by appropriate client personnel
observation of client personnel performing various tasks, such as preparing bank deposits and conducting an inventory count
inquiry of client personnel about how they perform their tasks
re-performing control procedures to test their effectiveness

When conducting detailed substantive procedures (also called substantive testing or tests of details), an auditor searches for evidence that:

recorded and disclosed transactions occurred and relate to the client (occurrence assertion),
all transactions have been recorded and all related disclosures have been included (completeness assertion),
all transactions have been recorded at appropriate carrying amounts and appropriately measured, and the related disclosures have been appropriately measured and described (accuracy
assertion),
all transactions have been recorded in the correct accounting period (cut-off assertion),
all transactions have been recorded in the correct accounts (classification assertion), and
all transactions and events have been appropriately aggregated or disaggregated, and the related disclosures are relevant and understandable (presentation assertion).
When gathering this evidence, an auditor uses a variety of audit procedures. Here are a few examples:

receiving confirmation from the client’s bank regarding interest rates charged on amounts borrowed by the client during the accounting period (accuracy assertion)
recalculating an interest expense using the confirmed interest rates (accuracy assertion)
inspecting documents to verify the date of transactions around year end (cut-off assertion)
inspecting suppliers’ invoices to verify amounts purchased (completeness assertion)
When conducting detailed substantive procedures, an auditor searches for evidence that:

recorded accounts such as assets, liabilities, and equity accounts exist (existence assertion),
all accounts that should have been recorded have been recorded and all related disclosures have been included (completeness assertion),
recorded accounts represent items owned by the client or amounts owed by the client to third parties (rights and obligations assertion), and
recorded accounts appear at appropriate carrying amounts and any resulting valuation or allocation adjustments have been appropriately recorded and the related disclosures have been
appropriately measured and described (accuracy, valuation, and allocation assertion).
When gathering this evidence, an auditor uses a variety of audit procedures. Here are a few examples:

receiving confirmation from a selection of accounts receivable of amounts owed to the client (existence assertion)
recalculating the wages payable amount (accuracy, valuation, and allocation assertion)
inspecting inventory and counting amounts on hand (existence and completeness assertions)
inspecting supplier statements for amounts outstanding at year end (completeness and accuracy, valuation, and allocation assertions)
inspecting title deeds to verify that the client owns property (rights and obligations assertion)

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6/4/24, 9:22 PM Question 9 of 10 - Chapter 6: WileyPLUS Assignment

Chapter 6: WileyPLUS Assignment

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Using the dropdown menus in the following table, select the appropriate audit strategy given the various risk assessments.

Audit Risk Inherent Risk Control Risk Detection Risk Audit Strategy

High High High Low Substantive Strategy

Low Low Low High Combined Strategy

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Audit risk and audit strategy

Audit Risk = f Inherent Risk Control Risk Detection Risk

1) High High High Low

Control Risk= No tests of controls Detection Risk=Increased reliance on substantive tests of transactions and account balances Audit Strategy=Substantive strategy

2) Low Low Low High

Control Risk= Increased reliance on tests of controls Detection Risk=Reduced reliance on substantive tests of transactions and account balances Audit Strategy=Combined strategy

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6/4/24, 9:24 PM Question 10 of 10 - Chapter 6: WileyPLUS Assignment

Chapter 6: WileyPLUS Assignment

You’ve completed all of the work in this assignment.

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Match the appropriate terms from the list provided to the definitions.

Definitions: List of terms:

1. Assertion that assets, liabilities, and equity interests are included in the financial Accuracy, Valuation, and Allocation
statements at appropriate amounts and any resulting valuation or allocation
adjustments are appropriately recorded.

2. The purpose of the test and the procedure used. Nature of Audit Testing

3. The stage of the audit when procedures are performed and the date, such as Timing of Audit Testing
within or outside the accounting period, that audit evidence relates to.

4. The amount of audit evidence gathered when testing controls and conducting Extent of Audit Testing
detailed substantive procedures.

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