in the audit risk model audit sampling applies to

Though this model seems simple enough, the problem is how to derive the inputs to the model. Another concern is that, since every input to the equation is subjective, how can we realistically expect to multiply and divide them? In essence, we are attempting to apply mathematical concepts to opinions. Nonetheless, the equation is a useful way to conceptualize how an audit program should be constructed to collect a sufficient amount of appropriate audit evidence. The nature of the audit procedures conducted. In summary, we need to understand controls even if we plan to use a fully substantive approach, and even if risks are assessed at high for all assertions.

Ideally, a sampling plan should reject all “bad” lots while accepting all “good” lots. However, because sampling plans base decisions on a sample of the lot and not the entire lot, there is always a chance of making an incorrect decision. These errors are referred to as Producer's Risk and Consumer's Risk.

Inherent risks exist because the nature of business and their respective environments can be complex and unruly. For example, a newly established financial organization is trading in complex derivative instruments; this will lead to a high level of inherent risk for audit risk assessment purposes.

Understanding Internal Controls

Others assess control risk at high when it would be better if they did not. The misunderstandings about this risk can result in faulty audits and problems in peer review.

1For purposes of this Appendix, the nonsampling risk aspect of audit risk is assumed to be negligible, based on the level of quality controls in effect. 9The auditor who prefers to think of risk levels in quantitative terms might consider, for example, a 5 percent to 10 percent risk of assessing control risk too low. The maximum rate of deviations from prescribed controls that would support his planned assessed level of control risk.

Intelligent Rebate Management Solution

This risk can be lessened by sampling more transactions. Detection Risk is the risk that the auditors fail to detect a material misstatement in the financial statements.An auditor must apply audit procedures to detect material misstatements in the financial statements, audit risk model whether due to fraud or error. Which statement is incorrect regarding the extent of tests of controls? The auditor designs tests of controls to obtain sufficient appropriate audit evidence that the controls operated effectively throughout the period of reliance.

Which of the following is an example of sampling risk?

Answer: b. Choosing a sample size that is too small to achieve the sampling objective. Sampling risk is the risk that the auditor's judgment or conclusion on the tests/procedures performed on the selected samples would be different if the entire population were considered.

0 0 votes
Article Rating
Notify of
Inline Feedbacks
View all comments
Would love your thoughts, please comment.x