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Homework answers / question archive / Audit sampling is the use of an audit procedure on a selection of the items within an account balance or class of transactions
Audit sampling is the use of an audit procedure on a selection of the items within an account balance or class of transactions. The sampling method used should yield an equal probability that each unit in the sample could be selected the intent behind doing so is to evaluate some aspect of the information Case of Zenith Limited Beforo performing sampling procedures during an audit of Zenith's controls the external auditor has set the tolerabile deviation rate at 55% After the procedures, the external auditor computes a computed upper deviation ratio of 41% Required: a Discuss the effectiveness of the internal controlat Zonith Limited (10 marks) b. Compare and contrast between test of control and substantive test (10 marks)
(a)
yes internal control system at Zenith is effective since the deviation calculated by external auditors (4.5%) in within the range calculated by the company (5.5%)
Effective internal control reduces the risk of asset loss, and helps ensure that plan information is complete and accurate, financial statements are reliable, and the plan’s operations are conducted in accordance with the provisions of applicable laws and regulations. When internal control is effective, you have reasonable assurance that your plan is achieving its financial reporting objectives. When it is not effective, you have little or no such assurance.
(b)
SUBSTANTIVE TESTING
The auditor's tests of the accuracy of monetary amounts of transactions and account balances are known as substantive testing. Substantive testing is very different from testing controls. Substantive tests verify whether information is correct,
CONTROL TESTS
control tests determine whether the information is managed under a system that promotes correctness. Some level of substantive testing is required regardless of the results of control testing. If weak internal controls exist or if important controls are not in place, extensive substantive testing will be required. On the other hand, if controls are found to be effective, the amount of substantive testing required is significantly lower, because there is less chance of error in the underlying records.
