Question

Audit Sampling

• Why you do substantive testing
• Why you test control
• What is the characteristics  of sampling
• what is the objective choosing a sample
• TER = how to control
• Relation with ARIA, TER , EPER
• Definition of risk of material misstatement  and how to handle in various situations
• Job of credit manager = how it affects your audit work
• Definition of what is an error

Answer 1

1) The purpouse behind a substantive test is to make sure that the information in the financial statements are backed with supportive source documents. Source documents support the auditor statement that there is no material    misstatements in the financial records of the company and it is accurate, valid and complete to the best of his/her knowledge.

2) Test of controls ensures the effectiveness of internal control system. If the internal control system of a company is effective, then the auditor will focus more on test of controls and will have less focus on substantive tests.

3) a) Sampling reduces the chance of fraud information

b) Sampling provides high confidential information. The more samples we choose the more confidential the information will be.

c) Advantage of wide variety of information from a diverse population.

4) The objective behind selecting a sample is to get the most appropriate information about the population with available sources. Selecting a sample from a group of people reduces the costs to get maximum information from the entire population. Sampling is aimed to reduce potential bias among the people as the sample is the representative of the entire people.