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Sunday, January 13, 2019

Audit Sampling

Risks in Sampling

  • Sampling Risk
    • Alpha Risk: affects EFFICIENCY
      • Test of Control: Risk of underreliance
      • Substantive Test: Risk of incorrect rejection
    • Beta Risk: affects EFFECTIVENESS
      • Test of Control: Risk of overreliance
      • Substantive Test: Risk of incorrect acceptance
  • Non-sampling Risk
    • Human errors
Controlling the Risks
  • Sampling Risk
    • Increasing the sample size
    • Using an appropriate sample selection method
  • Non-sampling Risk
    • Proper planning
    • Adequate direction, review, and supervision of the audit team
General Approaches to Audit Sampling
  • Statistical Sampling
    • Uses random-based selection of sample
    • Uses the law of probability to measure sampling risk and evaluate sample results
  • Non-statistical/Judgment Sampling
    • Purely uses auditor's judgment in estimating sampling risks, determining sample size, and evaluating sample results.
  • Both
    • Are acceptable
    • Require use of auditor's judgment
    • Can not assure that the sample will be representative of the population
  • Difference
    • Statistical sampling allows the auditor to MEASURE OR QUANTIFY the sampling risks with the use of mathematical formula. Thus, statistical sampling helps the auditor to:
      • Design an efficient sample
      • Measure the sufficiency of evidence obtained
      • Objectively evaluate the sample results
Costs associated with sampling
  • Training audit staff
  • Designing sampling plans
  • Selecting items for examination
Audit Sampling Plans
  • Attribute Sampling
    • Used to estimate frequency of occurrence of a certain characteristic (occurrence rate).
    • Generally used for TESTS OF CONTROLS to estimate the rate of deviation
  • Variable Sampling
    • Used to estimate a numerical measurement of a population such as peso value
    • Generally used in SUBSTANTIVE TESTS to estimate the amount of misstatements

Sunday, May 6, 2018

Audit Procedures

Scope of an audit


Refers to the audit procedures deemed necessary in the circumstances to achieve the objective of an audit.

Audit Procedures

Are the methods or acts that auditors use to gather evidence to determine the validity of the FS assertions.

Examples are:

Audit Procedure
Description
Inspection / Examination of Documents
Consists of examining records, documents, or tangible assets.
Consists of examining records, documents, or tangible assets.
Consists of looking at a process/procedure being performed by others.
Inquiry and Confirmation
Inquiry – seeking information of knowledgeable persons
Confirmation – consists of the response to an inquiry to corroborate information contained in the accounting records.
Computation / Reperformance
Computation – checking the mathematical accuracy of source documents and accounting records or performing independent calculation.
Reperformance – repeating a client activity
Tracing
Involves establishing completeness of transaction processing by following through accounting records.
From documents to records.
Reconciliation
Involves establishing agreements between 2 sets of independently maintained but related records.
Vouching
Involves following a transaction back to supporting documents from a subsequent processing step (also referred to as “tracing back”). Establishes existence or occurrence.
From records to documents.
Analytical procedures
Consists of comparing relationships between data to determine reasonableness of recorded amounts.

Relationship of Audit Techniques, Audit Procedures, and Assertions

Audit Techniques are the basic tools or means employed to obtain audit evidences.

Audit Technique
Illustrative Application
Assertion Substantiated
Count
Counting of inventory, cash securities, unmatured promissory notes.
PHYSICAL EXISTENCE.
To establish existence and, where applicable, ownership and condition of assets.
Confirm
Obtaining confirmation directly of details of account balances.
EXISTENCE, RIGHTS AND OBLIGATIONS.
To verify validity and accuracy of balances & other information with outside parties.
Inquire
Obtaining client’s representation letter; explanation to many diverse questions raised during the audit.
COMPLETENESS.
To obtain knowledge.
Examine / Inspect / Review / Trace / Verify / Vouch
Examining (or vouching) paid checks, vendors’ invoices, approved client documents, titles, contracts, and other documentary materials.
OCCURRENCE, MEASUREMENT.
To verify the validity and propriety of accounting treatment & internal control compliance.
Observe / Test / Verify
Observing the taking of physical inventories by client personnel; of actual operation of internal control.
EXISTENCE.
To determine compliance with prescribed procedures.
Extend / Foot
Rechecking clerical determinations by client.
MEASUREMENT.
To verify the accuracy of computations and transfer of information made by client.
Compare / Trace
Comparing current period account balances or operating data with similar information for prior periods and investigation of unusual data relationship.
COMPLETENESS.
To disclose and determine the reasons for significant changes.
Analytical review
Compare sales with sales budget.
COMPLETENESS.

Thursday, January 12, 2017

Discussions in Corporate Law by Atty. Johnson Ong (Year 2012)


By: Atty. Johnson A. H. Ong, CPA, MBA
      PRTC Reviewer in Business Law

PRTC lecturer Atty. Ong

Track 1
Track 2
Track 3
Track 4
Track 5
Track 6
Drill


*Author's Note: These materials are intended solely for review and academic use specifically published to help aspiring CPA Reviewees and accountancy students prepare for the Philippine Certified Public Accountant (CPA) Board Examinations. Copying and distributing such materials are considered violations of the copyright law and may result to legal proceedings.

Tuesday, November 29, 2016

Discussions in Contracts by Atty. Johnson Ong (Year 2012)

By: Atty. Johnson A. H. Ong, CPA, MBA
      PRTC Reviewer in Business Law

PRTC lecturer Atty. Ong

Track 1
Track 2
Track 3
Track 4
Track 5
Drill No. 01


*Author's Note: These materials are intended solely for review and academic use specifically published to help aspiring CPA Reviewees and accountancy students prepare for the Philippine Certified Public Accountant (CPA) Board Examinations. Copying and distributing such materials are considered violations of the copyright law and may result to legal proceedings.
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