Discuss audit sampling for tests of details of balances and for tests of controls and substantive tests of transactions.
Discussion topic:
1. As auditors move from the planning phase to the fieldwork phase of an audit, they recognize they will not be able to test all transaction in order to offer their opinion on the financial statements. Therefore, various sampling techniques and principles have been developed to assist the auditor in providing adequate coverage and a reliable opinion using samples of transactions.
Discuss audit sampling for tests of details of balances and for tests of controls and substantive tests of transactions. How do they differ?
Student Post
2. Discuss audit sampling for tests of details of balances and for tests of controls and substantive tests of transactions. How do they differ?
Audit sampling is used to calculate several features concerning balances and classes in financial statements. An Auditor uses a sampling method to determine whether controls are functioning successfully. “Auditors use sampling for tests of controls and substantive tests of transactions to determine whether controls are operating effectively and whether the rate of monetary errors is below tolerable limits. In tests of controls and substantive tests of transactions, the primary concern in tests of controls and substantive tests of transactions, the primary concern is testing the effectiveness of internal controls and the rate of monetary misstatements. When an auditor performs tests of controls and substantive tests of transactions, the purpose is to determine if the exception rate in the population is sufficiently low to justify reducing assessed control risk to reduce substantive tests. When statistical sampling is used for tests of controls and substantive tests of transactions, attributes sampling is ideal because it measures the frequency of occurrence (exception rate). In tests of details of balances, the concern is determining whether the monetary amount of an account balance is materially misstated. Attributes sampling, therefore, is seldom useful for tests of details of balances.
https://www.proprofs.com/discuss/q/65659/what-major-difference-between-tests-of-controls-and
3. Test of controls are when an auditor performs a test to make sure that the evidence they have obtained if sufficient and appropriate in supporting their assessment. Test of controls can be done either manually or be automated, and may make inquires of appropriate client personnel, examine documents, records, and reports, observe control-related activities, and repertory client procedures. Test of controls measures the operating effectiveness of internal controls. Substantive test of transactions measures the monetary correctness of transactions in the accounting system. It is designed to test for dollar misstatement. There are three types of substantive tests that an auditor relies on, substantive test of transactions, substantive analytical procedures, and test of details of balances. Test of details of balances focuses on the ending balances of the balance sheet and the income statement accounts. Examples of tests of details of balances could include confirmation of customers balances for accounts receivable, or physical examination of the inventory. Test of details of balances are essential because evidence is typically gathered from an outside source and is considered to be highly reliable.
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