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(a) Factors to consider when determining sample size
• Population size
• Nature of the internal control system
• Materiality level
• Confidence level required.
• Time and cost
• Expected error
• Tolerable error
• Auditing experience
• The strength of the internal control System
(b) Quality of audit audience
(1) Evidence originated by the auditors
Evidence originated by the auditor is in general the most reliable type of audit evidence because
there is little risk that it can be manipulated by management.
Examples:
• Analytical procedures such as the calculation of ratios and trends in order to examine
unusual valuations
• Physical inspection or observation, such as attendance at physical inventory counts or
inspection of a non-current asset.
• Re-performance of calculations making up figures in the accounts, such as the
computation of total counts.
(ii) Evidence generated by third parties
Third party evidence is more reliable than client produced evidence to the extent that it is
obtained from sources which are independent or if there is a risk that client personnel may be
able to and have reasons to suppress or manipulate it.
This, for instance, is an argument against having replies to circularization sent to the client
instead of the auditor.
Examples:
• Circularization of trade accounts reliable or payables and other requests from the auditors
.for confirming evidence such as requests for confirmation of bank balances. .
• Reports produced by experts such as property valuations, actuarial valuations, legal
opinions. In evaluating such evidence, the auditors need to take into account the
qualifications of the expert, his 'or her independence of the client and the terms of
reference under which the work was carried out.
• Documents held by the client which were issued by third parties, such as invoices, price
lists and statements. These may sometimes be manipulated by the client to the extent that
items may be suppressed or altered and to this extent they are less reliable than
confirmations received direct.
(iii) Evidence created by management
The auditors cannot place the same degree of reliance on evidence produced by client
management as on that produced outside the client organization. However, it will often be
necessary to place some reliance on the client's evidence. The auditors will need to obtain audit
evidence that the information supplied is complete and accurate and apply judgment in so doing
taking into account previous experience of the clients reliability and the extent to which the
clients representations appear compatible with other-'-audit findings as well as the individuality
of the item under discussion.
Examples
The company's accounting records and supporting schedules.
• The clients explanations of for instance apparently unusual fluctuations in results.
• Information provided to the auditors about the internal control system.
Kavungya answered the question on May 14, 2019 at 13:44
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