i) Sampling Risk and Non-Sampling Risk
-Sampling risk is the risk that the auditor‘s conclusion, based on a given sample may be different from the conclusion reached if the entire population were subjected to the same audit procedure i.e. either the auditor wrongly concludes that control risk is higher than it actually is or that a material error exists when in fact it does not.
-Non-sampling risk refers to risks arising from factors that cause the auditor to reach an erroneous conclusion for any reason not related to the sample size e.g. use of inappropriate procedures on the mis-interpretation of audit evidence.
ii) Tolerable Error and Expected Error
-Tolerable error refers to the maximum error in the population that the auditor would be willing to accept and still conclude that the result from the sample has achieved his audit objective.
-Expected error on the other hand refers to the rate of deviation from the prescribed control procedure that the auditor expects to find in the population. This determine the sample size taken by the auditor i.e. the higher the expected error, the smaller the sample size.
iii) Audit Risk and Detection Risk
-Audit risk is the chance of damage that may occur to the audit firm as a result of giving wrong audit opinion. This could be in form of monetary damages to client as compensation or loss of reputation.
-Detection risk is part of audit risk and is the risk that an auditor‘s substantive procedures will not detect a misstatement in an account balance or class of transactions that could be material, individually or when aggregated with misstatements in other balances or classes
Wilfykil answered the question on February 22, 2019 at 08:42
- Identify and explain four factors that would influence the size of a sample selected by an external auditor to enable him carry out a compliance...(Solved)
Identify and explain four factors that would influence the size of a sample selected by an external auditor to enable him carry out a compliance test.
Date posted: February 22, 2019. Answers (1)
- List the main control features one would expect to find in the following activities related to the buying function in an organization:
(i) Buying of goods...(Solved)
List the main control features one would expect to find in the following activities related to the buying function in an organization:
(i) Buying of goods
(ii) Receipt of goods
(iii) Payment of outstanding balances
Date posted: February 22, 2019. Answers (1)
- Clearly outline the statutory responsibilities of an external auditor in relation to the audit of a company‘s financial statements(Solved)
Clearly outline the statutory responsibilities of an external auditor in relation to the audit of a company‘s financial statements
Date posted: February 22, 2019. Answers (1)
- Briefly explain, giving an example in each case, five functions of an audit software interrogation programme(Solved)
Briefly explain, giving an example in each case, five functions of an audit software interrogation programme
Date posted: February 22, 2019. Answers (1)
- Identify five sections in which information technology can be used to enhance the administration procedures and controls over an audit(Solved)
Identify five sections in which information technology can be used to enhance the administration procedures and controls over an audit
Date posted: February 22, 2019. Answers (1)
- Identify five audit benefits that could be derived from using Computer Assisted Audit Techniques (CAATs) when carrying out testing of computer records(Solved)
Identify five audit benefits that could be derived from using Computer Assisted Audit Techniques (CAATs) when carrying out testing of computer records
Date posted: February 22, 2019. Answers (1)
- Briefly explain the types of audit opinion that would normally arise from a limitation in the scope of audit.(Solved)
Briefly explain the types of audit opinion that would normally arise from a limitation in the scope of audit.
Date posted: February 22, 2019. Answers (1)
- Explain the factors that external auditors should consider in determining whether the financial statements of a limited company show a true and fair view(Solved)
Explain the factors that external auditors should consider in determining whether the financial statements of a limited company show a true and fair view
Date posted: February 22, 2019. Answers (1)
- Auditors may be liable to shareholders and other parties who may have relied on the financial statements upon which the auditors have expressed an opinion....(Solved)
Auditors may be liable to shareholders and other parties who may have relied on the financial statements upon which the auditors have expressed an opinion. This is because the auditors are generally taken as owing a ―duty of care those parties and they
could be liable in the tort of negligence if they failed that duty.
Required:
(a) With reference to the external audit assignment, explain the meaning if the term ―duty of care
(b) Briefly explain the auditors‘ general responsibility. With regard to the prevention and detection of fraud and errors.
(c) State and briefly explain five possible measures that auditing firms should take in order to avoid legal actions for negligence against them.
Date posted: February 22, 2019. Answers (1)
- Identify four factors that should be taken into consideration by an audit firm when allocating staff to audit assignments(Solved)
Identify four factors that should be taken into consideration by an audit firm when allocating staff to audit assignments
Date posted: February 22, 2019. Answers (1)
- List two advantages and two disadvantages of using standardised audit programmes during audit assignments(Solved)
List two advantages and two disadvantages of using standardised audit programmes during audit assignments
Date posted: February 22, 2019. Answers (1)
- Briefly explain how an audit firm may use third party confirmations to provide evidence in relation to six difference balance sheet items(Solved)
Briefly explain how an audit firm may use third party confirmations to provide evidence in relation to six difference balance sheet items
Date posted: February 22, 2019. Answers (1)
- For each of the following assets, suggest ten practical control procedures that the owner of
the retail hardware shop should implement to minimise possible losses through...(Solved)
For each of the following assets, suggest ten practical control procedures that the owner of the retail hardware shop should implement to minimise possible losses through theft and fraud:
(a) Cash
(b) Stocks
Date posted: February 22, 2019. Answers (1)
- List four advantages and four disadvantages of using the risk-based audit approach when auditing the financial statements of limited companies(Solved)
List four advantages and four disadvantages of using the risk-based audit approach when auditing the financial statements of limited companies
Date posted: February 22, 2019. Answers (1)
- Identify the circumstances when it is appropriate to use only a substantive approach in an audit and when a combination of compliance and substantive tests...(Solved)
Identify the circumstances when it is appropriate to use only a substantive approach in an audit and when a combination of compliance and substantive tests should be used
Date posted: February 22, 2019. Answers (1)
- State the specific representations you, as an auditor, would wish to obtains from the management in respect of :
(i) Assets.
(ii) Liabilities.(Solved)
State the specific representations you, as an auditor, would wish to obtains from the management in respect of :
(i) Assets.
(ii) Liabilities.
Date posted: February 22, 2019. Answers (1)
- State and briefly explain the action auditors should take if the management refuses to provide a letter of representation.(Solved)
State and briefly explain the action auditors should take if the management refuses to provide a letter of representation.
Date posted: February 22, 2019. Answers (1)
- You have completed your audit of Tinga Tinga Ltd. You have issued a management letter to
the Chief Accountant which identifies weaknesses in the controls over...(Solved)
You have completed your audit of Tinga Tinga Ltd. You have issued a management letter to the Chief Accountant which identifies weaknesses in the controls over sales. Cash is received over the counter, from salesmen and also through the post. Tinga Tinga Ltd‘s Chief Accountant has asked you for recommendations as to the type of controls you would wish to see in operation in a sales system.
Required:
Outline the controls you would expect to find in Tinga Tinga Ltd‘s sales system with regard to:
a) Cash receipts by post
b) Cash collected by salesman
c) Cash sales within Tinga Tinga Ltd‘s premises
d) Banking of cash received
Date posted: February 22, 2019. Answers (1)
- Identify the audit procedures which would need to be carried out in order to identify material post – balance sheet events.(Solved)
Identify the audit procedures which would need to be carried out in order to identify material post – balance sheet events.
Date posted: February 22, 2019. Answers (1)
- Explain the nature and purpose of a post-audit review(Solved)
Explain the nature and purpose of a post-audit review
Date posted: February 22, 2019. Answers (1)