QUESTIONNAIRE

13-1 (Objective 13-1) What are the five types of tests that auditors use?
to determine if the financial statements are presented fairly?
Identify which tests are performed to reduce control risk and which ones.
tests are carried out to reduce the planned risk of detection. Also,
identify which tests a public company auditor will use when
audited the internal control over financial reports.

1. Procedures to obtain knowledge of internal control.

2. Control tests.
3.Substantive tests of operations
4. Analytical procedures.
5. Tests of the balance details.

Identify which tests are performed to reduce control risk.

Procedures to obtain an understanding of internal control.

Control tests.

What tests are performed to reduce the planned detection risk?

Analytical procedures.
Tests on the details of the balances.

13-2 (Objective 13-1) What is the purpose of control testing? Identify

the specific accounts in the financial statements that are affected when making the
control tests for the acquisition and payment cycle.

The Acquisition and Payment Cycle

The acquisition and payment cycle includes somec functionschild
Acquisition ofgoods, mmerchandise, services and myear of work

Payment for acquisitions

Classification, summaries, and reports of what was acquired and what was paid

Typical main functions of purchasing

Supplier selection

Request purchases

Buy
Within the acquisition of goods, some departments or functional areas are involved.
such as:
Reception

2.Credit and Collections

3. Cashier-Accounting

4. Accounting

5.Financial

Comptroller

7.Purchases
The function dePurchases tI have comethe objectives:
Reduce the inventory level

Combine small batches into large batch purchases

Implement control ofquality andin the purchases

Establishesand policies ofacquisition and bidding

Maintain a record of the products

The mainindicators ofThe Purchasing Department is:

Total purchase value /Salestotal compared to the previous year

2. Total purchases/Number of purchases

3. Percentage of rejected purchases

4. Percentage of paralysis of theproduction by fhighof matter prmother

Inventory/Sales

6. Average Cost of Purchase Order

7. Average delivery time of orders

13-3 (Objective 13-1) Distinguish between a control test and a substantive test
of the operations. Provide two examples of each.
CONTROL TEST:
The auditor must conduct control tests in order to gather evidence about the
operational effectiveness of internal control procedures that prevent or correct
material misstatements due to error or fraud in the financial statements.

The audited control procedures may depend on any of the five

components of internal control, namely: Control Environment, Risk Assessment,
Control, Information and Communication, and Supervision and Monitoring Activities.

EXAMPLES:

Consultations with the staff: it involves interviewing the personnel in charge of the controls.
to obtain information about its operation. For example, to determine which staff
unauthorized persons should not have access to certain digital files, the auditor can consult with
the person who controls the digital files and the person who controls the assignment of
passwords for online access.

Document examination, records and reports: it involves tracing the documentary evidence.
of the controls in the procedures and transactions. This procedure includes verifying
that all documents are complete, and that they have the signatures and authorizations
required.

SUBSTANTIVE TEST OF OPERATIONS

Substantive tests, or tests to verify if specific amounts are correct
recorded in the accounting records, aim to obtain that evidence related to the statements
financial and thus reach reasonable conclusions, keeping in mind that the
absolute certainty about the reliability of financial information content is
difficult. Hence the use of the adjectives 'sufficient' and 'adequate' referring to the
evidence, in relation to the objective proposed by the auditor in their work.
Therefore, the objective is to obtain evidence through substantive tests in relation to
with a series of statements contained in the accounts and responsibility of the Management of
the audited company.
EXAMPLE:
As a specific example of the use of substantive tests within the process of
confirmations of accounts receivable, for ordinary sales, installment sales, etc., the auditor
you can decide to confirm separately, the outstanding invoices for accounts receivable, for
ordinary sales of the outstanding balances of installment accounts. In the case of an entity
the auditor can enter to separately confirm the customer promissory notes for
ordinary loans from customer promissory notes for special credits, such as those
reasons for rediscounting, etc. In the concluding phase of the audit, the auditor must first
evaluate each of these subpopulations and then combine the evaluations to reach
a conclusion about the entire population or universe.
The required evidence, that is, the third auditing standard related to the execution of
The auditor's work is obtained through two types of procedures:
1. Detailed tests of transactions and balances.
2. Analytical inspection of significant reasons and trends and investigations of
abnormal fluctuations and questionable items.
13-4 (Objectives 13-1, 13-4) Indicate an audit procedure for the
tests of controls to test the effectiveness of the following control: The
approved salary rates are used in the calculation of revenues of the
employees. Indicate a substantial test of the audit procedure
operations to determine if the approved wage rates are being used in
reality in the calculation of employee income.

The staffing cycle andpayrolls Iinvolves theemployment andpayment of all employees, without
import the classification or method by which their compensation is determined. The employees
includes executives with a fixed salary plus bonuses, clerks with a monthly salary with
time andextra commission salespeople, and factory and unionized staff to whom
pay for now.
The cycle is important for several reasons. Firstly, the salariessalariestaxesa
the patterns, and otherscosts ofThey are the main expense in all companies. In
second place, labor is such an important consideration in the
evaluation dinventory in industrial companies andconstructionthat the classification and
Incorrect award of labor can result in a significant mistake.
in theutility notthe last onespayrollsin an area where large amounts are wasted
quantities ofresources ofcompany due to inefficiency or they steal through thefraud.
In the largest companies, many accounts of the General Ledger are frequently affected.
for the payroll. For example, it is common for largeorganizations thave 50 accounts or
more payroll expenses.
Payroll also affects inventory accounts.production andin process andarticles
finished products for industrial companies.
Just like in the sales and collection cycle, the audit of the payroll cycle
includes the understanding of thestructure iinternal control, evaluation ofrisk of control
tests ofcontrols and substantive tests of transactionsprocedures ofanalysis and
balance detail tests.
There are several important differences between the payroll and personnel cycle and other cycles.
a typified audit.
There is aclass oftransactions for the payrolls. Most of the cycles include for the
less than two classes of transactions. For example, the sales and collection cycle includes both
sales as transactions in which cash is received, and often also includes
returns in sales and cancel uncollectible account clones.
 Inchangethe payroll has a type of transactions because the receipt ofservices of
Employees and the payment for those services through the payroll occur in a short period.
The internal controls over payroll are effective for almost all companies up to the
small. The reasons for effective controls are the strong federal penalties and
fines imposed due to errors in the withholding and payment of payroll taxes and
problems ofmoral andin the employees if they are not paid or are paid less.
For these three characteristics, auditors generally emphasize tests of
controls, substantive tests of transactions, and analytical procedures in the audit
from the payrolls. Balance detail tests often take a few minutes.
In most systems, the accumulated salary and wage account is indeed used at the end.
from an accounting period. During the period, expenses are charged when they are actually paid.
to the employees, and not when labor costs are incurred. They are recorded
accumulations of labor when adjusting the entries at the end of the period, for any
cost ofearned but unpaid labor.

13-5 (Objective 13-1) A considerable portion of the control tests and tests
The substantive operations are carried out simultaneously as it suits the.
audit. However, the substantive tests of the operational procedures
and sample sizes depend in part on the results of the tests
controls. How can the auditor resolve this apparent inconsistency?

When designing audit procedures, the auditor must determine the means
appropriate for selecting the items subject to testing in order to gather evidence on the
audit that meets the objectives of this, in this way the auditor will be able to proceed.

13-6 (Objectives 13-2, 13-4) Evaluate the following statement: “The tests of the
sales receipts and cash operations are such an essential part of every
audit that I would like to carry out as close to the end of the audit as possible
possible. By the time I have a good understanding of the client's business and its
internal controls due to confirmations, cut-off tests, and others
procedures that have already been completed.

After properly documenting the internal controls, it is crucial that it be carried out
I finish a system verification to ensure that the described controls are in place.
place. There are five types of auditing procedures, related to the
knowledge of the auditor, which are.

Update and assessment of the auditor's prior experience with the entity.
Conducting inquiries with client personnel.
 Review of documents and records.
Observation of the activities and operations of the entity.
Conduct tests of the accounting system.

When it is believed that control policies and procedures are designed in a way
effective and when it is efficient to carry them out, the auditor will choose to assess the control risk
to a level that reflects that belief. However, when conducting this risk assessment, you must
limit oneself to the level that the evidence supports. The procedures used to obtain
Such evidence is referred to as control tests.

These are carried out to determine the suitability of the design and the effectiveness of the
functioning of specific internal controls, which can be manual or
systematized. These tests include the following types of procedures:

Make inquiries to the appropriate client staff.

Review documents, records, and reports.
Observe the activities related to control.
Client procedure engagement networks.

13-7 (Objectives 13-1, 13-2) Explain how the calculation and comparison of the years
previous percentage of gross margin and the accounts receivable ratio
for sales are related to the confirmation of accounts receivable and
other tests of the accuracy of accounts receivable.

The procedures to achieve an understanding of internal control and of the tests of

control is based on two assumptions:
First, only cash sales and receipts and three balances from the general ledger make up
the sales and collection cycle.
Secondly, the initial balances in cash and accounts receivable were audited in the previous year and
are considered correct. If the auditor verifies that sales and receipt operations of
cash was recorded correctly in the accounting records and was entered in the
general ledger, so the conclusion can be that the term balances in the accounts
Accounts receivable and sales are correct.

13-8 (Objective 13-1) Distinguish between substantive tests of operations and

tests of the details of balances. Give an example of each for the cycle of
acquisition and payment.

Substantive tests of operations: these are procedures designed to perform

tests of erroneous dollar claims that directly affect the accuracy of
the balances in the financial statements, their purpose is to determine if the six have been fulfilled
audit objectives related to operations for each type of these.

An example is when the auditor performs substantive tests on the operations in order to
to know if the recorded operations exist and if the existing operations are restricted.
 The auditor also performs these tests to determine if sales operations
registered are registered accurately, in the appropriate time period, they are
correctly classified, accurately summarized, and recorded in the general ledger
and in master files.
If the auditor trusts that the operations were recorded correctly in the ledgers and
If entered correctly, you can be sure that the totals of the general ledger
they are correct.

Substantive operation tests are conducted for cycle operations, not in the
final account balances.

Tests of the detail of the balances: focuses on the final balances of the general ledger
general for the balances and accounts of the income statements, but most of the
Balance detail tests are conducted on the general balance. They are carried out for sales.
and accounts receivable, with the aim of establishing the monetary accuracy of the accounts
with which they relate and therefore are substantive tests.

For example, the confirmation tests for monetary errors that are therefore
substantive in a similar way the inventory counts and available cash are also
substantive tests.

13-9 (Objective 13-3) The auditor of Ferguson's Inc. identified two internal controls in
the cycle of sales receipts and collection for testing. In the first control, the
the computer checks that a planned sale in the account will not exceed the limit of
customer credit entered in the master file of accounts receivable. In the
second control, the accounts receivable employee compares the knowledge of
shipment and customer orders before recording it in the sales journal.
Describe how the presence of general controls over the programs of
software and master files affect the level of audit tests of each
one of these two internal controls.

The audit must be conducted on the control testing for evaluations and financial statements.
affected.

The auditor can significantly reduce the tests if the test results
Control measures support the effectiveness of computer controls.
In the audit of a public company, the controls that are subject to testing must be examined.
they are performed by computer if they are considered key controls to reduce the
probability of material misstatements in the financial statements.

Due to the inherent consistency of the information technology process, the auditor can
reducing the degree of automated control tests, it is almost certain that a control
based on software functioning consistently unless the program changes.
To test automated controls, the auditor may need to use techniques that
they are different from those used to test manual controls.
13-10 (Objective 13-4) Suppose that the client's internal controls over the record
and the classification of fixed asset additions is considered deficient because the
individual responsible for recording new acquisitions has training
inadequate technical skills and limited experience in accounting. How would this affect
situation regarding the evidence that you must gather in the audit of fixed assets
compared to another audit where the controls are excellent? Being so
as specific as possible.

There is no efficient internal control, they did not carry out tests on the internal controls as
review sales invoices with general ledger, inventories, cash and equivalents, and accounts receivable
charge

13-11 (Objective 13-2) For each of the seven types of evidence discussed in the
chapter 7, identify if it is applicable for the procedures aimed at obtaining
a knowledge of internal control, control tests, substantive tests of
operations, analytical procedures and tests of the details of the balances.

If applicable, the physical examination is an inspection that the auditor must perform, which is
a direct means to verify that an asset considered a type actually exists
evidence, the confirmation upon receiving the oral or written response from a third party
independent to verify the accuracy of the information, the documents are the
customer records to support the information that is or should be included to provide
Information when performing, analytical processes use comparisons and relationships to
to determine if the account balances or others are reasonable, the client's inquiry is the
obtaining written or verbal information from the auditor's questions redeploying
again a sample of the calculations and information transfers that the client makes
during the period that was audited to then provide the respective observation on the use of the
meanings of evaluating certain activities.

13-12 (Objective 13-2) Categorize the following types of tests from the most expensive to
the most economical: analytical procedures, testing the details of the balances,
procedures to obtain knowledge of internal control and tests of
controls, and substantive tests of the operations.

The types of tests are listed in order from highest to lowest cost as follows:

Detail balance tests

Substantive tests of operations
Procedures to obtain an understanding of internal control and
control tests
Analytical procedures

The reason why analytical procedures are the least costly relatively.
ease of performing calculations and comparisons. The control tests also have a
low cost due to the auditor making inquiries and observations and reviewing issues
like approvals in documents or in computer files.
 Substantive tests of operations are more costly than control tests.
that do not include performance because new calculations and tracking are often required, the
detailed balance tests are almost always more expensive than any other type of
procedure.
13-13 (Objective 13-2) In figure 13-3, explain the difference between C3, C2, and C1.
Explain the circumstances in which it would be a good decision to obtain a
audit certainty of substantive tests at point C1. Do the same for
the points C2 and C3.

The control tests at the C1 level will provide the minimum control risk, given
internal controls. The auditor may choose not to perform any control tests.
(point C3), which would support a control risk of 1.0 Any point between the two,
as C2, IT WOULD ALSO BE ADEQUATE. If C2 is selected, the certainty is
audit based on control tests is C3 and C2 and based on the tests
substantives in C–C2. It is likely that the auditor will select C1, C2, or C3 based on the
relative cost of control tests and substantive tests.

13-14 (Objective 13-2) The following are three decision factors related to the
evaluated control risk: effectiveness of internal controls, profitability of a
evaluated control risk reduced, and results of the control tests.
Identify the combination of conditions for these three factors that are
are required before reduced substantive tests are allowed.

There is an exchange between control tests and substantive tests. During the
In planning, the auditor decides whether to assess the control risk below maximum.
The control tests must be applied to determine if the assessed control risk
It has a backup. These should also be carried out in a control audit.
Internal report on financial statements. If the control tests support the assessment.
of control risk, planned detection risk in the audit risk model
it increases and then the planned substantive tests can be reduced.

13-15 (Objective 13-4) Table 13-3 illustrates the variations in emphasis on

different types of audit tests. What are the benefits for the
auditor that involves identifying the best mix of tests?

Allows the auditor to have different types of tests to be used and their scope can
vary significantly depending on the type of audit, due to the different levels of
effectiveness of internal control and inherent risks. There may also be variations of
cycle within a specified audit. This allows for the combination of
the five types of tests that any particular cycle often facilitates to
auditor to make the controls more effective.
 13-16 (Objective 13-5) Indicate the four-step method for designing the
tests of controls and substantive tests of operations.

1.Apply the audit objectives related to operations for the class of

operation that is being tested, such as sales.

2. Identify the key controls that must reduce the control risk for each
audit objective related to operations.

3. For all the internal controls used to reduce the initial assessment of
risk of control below the maximum (key controls), develop the tests
of the appropriate controls.

4. For the types of potential errors related to each audit objective

related to the operations, design the appropriate substantive tests of the
operations, considering the deficiencies in internal control and the results
expected from the control tests in step 3.

13-17 (Objective 13-5) Explain the relationship between the methodology for design
tests of controls and substantive tests of operations in figure 13-4
with the methodology for the design of tests to the details of the balances in the figure
13-6.

Both the methodology for designing control tests and substantive tests of
the operations as in the methodology for the design of tests to the details of the
balances, design and conduct tests of controls and substantive tests of operations
for the sales and collection cycle, in the following steps; audit procedures,
sample size, items to select and opportunity.

13-18 (Objective 13-5) Why is it desirable to design tests of the details of the
balances before conducting control tests and substantive tests of the
operations? Indicate the assumptions that the auditor must make when doing so. What
What does the auditor do if the assumptions are incorrect?

Because detail tests are procedures designed to gather evidence that

a certain amount from the financial statements. They are used to obtain evidence of
audit regarding assertions such as existence, accuracy, and valuation.

The auditor must design and develop detailed tests that specifically respond to
the identified material risks that provide a high level of security
audit.
 The development of detailed tests includes the execution of the following
procedures:

●Examine material entries in the journal and other adjustments made during the course of
preparation of financial statements.
Align the financial statements with the underlying accounting records.

Additionally, the auditor must perform external confirmations regarding:

Terms of agreements and contracts.

Transactions between an entity and other parties.

13-19 (Objective 13-5) Explain the relationship of the tolerable error, the inherent risk
and the control risk for the planned tests of the balances.

Apply the audit objectives related to the balance to design detailed tests,
audit procedures, sample size, items to select, and timing.

13-20 (Objective 13-5) State the nine audit objectives related to the
balance in the confirmation of the term balance in the inventory and provide a
audit procedure useful for each of the objectives.

Existence—amounts included This objective refers to whether the included amounts

in the financial statements should actually be included. For example, the inclusion of a
accounts receivable from a customer in the trial balance of accounts
Charging when there is no accounts receivable from that client is a violation of the objective.
of existence. This audit objective is the counterpart of the assertion about existence
the occurrence of the auditor.

Integrity—Existing amounts are included. This objective refers to all the

amounts were included. The fact of not including an account receivable from a client in the
The trial balance is a violation of the integrity objective. This objective is the
counterpart of the statement on the integrity of the administration.
The objectives of existence and integrity emphasize opposing audit interests; the
the objective of existence refers to a potential overvaluation in as much as the objective of
integrity has to do with operations and amounts not recorded.
Accuracy - the included amounts are expressed in the correct amounts The objective
Precision refers to the amounts that are included in the correct arithmetic amount. A
the client's inventory entry could be wrong because the number was incorrectly recorded.
units of available inventory, because the unit price is incorrect or because it
settled the total incorrectly. Each of these objectives violates the goal of accuracy. The accuracy
It is part of the valuation or assignment statement.
Classification - the amounts included in a client's list are classified
The classification objective involves determining whether the items on a list
the client's accounts are included in the correct accounts. For example, in the list of accounts by
to collect, these must be separated into short-term and long-term accounts, and the amounts owed
Affiliates, officials, and directors must be classified independently of the
amounts owed by clients. The classification is also part of the statement of
valuation or assignment.
Cutting operations close to the date of the balance sheet are recorded upon verification.
the short date, the goal is to determine whether the operations are recorded in the period
suitable. The operations that are most likely to be poorly expressed are
those that are recorded near the end of the accounting period. It is correct to think of the
verifications of the cut-off date as part of the verification of the balance sheet accounts
general or related operations, but for convenience, auditors do it as
part of the audit of the balance sheet accounts. The cut is also part of the
valuation or assignment affirmation.
Detailed inventory—the account balance details match the amounts of the
master file, the total in the account balance is added and matches the total in the
The account balances in the financial statements are supported by details in the
master files and by documents prepared by the clients. The objective of inventory
detailed refers to the fact that the details of the lists are prepared accurately, that they are
added correctly and that agree with the greatest. For example, each of the
accounts receivable listed must be equal to the master file of accounts receivable and the total
it must be equal to the account ofcontrol ofmajor. The detailed inventory is also part of the
valuation or assignment affirmation.
Realization value—assets are included in the estimated realization amounts
This objective refers to whether a cash account balance has been reduced in cost.
historical to net value ratio. Examples of application of this objective are
consider the accuracy of the estimate for uncollectible accounts receivable and the
amortizations of inventory due to obsolescence. This objective applies only to accounts of
assets and it is also part of the valuation or allocation statement.
Rights and Obligations In addition to existing, it is necessary to possess the majority of the assets
before they are acceptable to include in the financial statements. Likewise, liabilities
should beproperty ofthe entity. Rights are always associated with assets and
the obligations with liabilities. This objective is the counterpart of the assertion of rights
and obligations of the auditor's management.
13-21 (Objective 13-7) Why do auditors often consider it desirable
conduct the audit tests throughout the year instead of waiting until the end of the
year? List several examples of evidence that can be accumulated before the end of the
year.

Because when conducting an audit throughout the year, it is possible to identify the
failures or problems of an entity or company at the moment, and thus it can be analyzed
the recommendations and possible solutions that will be given in the final report. The evidence that will be
They can accumulate during the course of an audit throughout the year:
A physical examination of the tangible assets of the company or entity.
Real-time observation of the commercial transactions carried out by the department
of sales.
Inspection at the time of generating the invoices that arrive from the different suppliers
of goods or services.
Seeing the monthly production performance of the company or entity.
Real inspection of the daily cash count and bank reconciliations.
Permanent observation of accounts payable and receivable.
Verify the well-being of the company's or entity's collaborators.
Projecting a sales level where a full profit point is established.
 REVIEW QUESTIONNAIRE CHAPTER 15

15-1 (Objective 15-1) Indicate what the concept of sample means

representative and explain its importance in audit populations of
sampling.

It is one in which the characteristics in the audit interest sample are

approximately the same as those of the population. The importance of this is its design,
selection and evaluation, since the representative sample is not known in the tests until
the end.

15-2 (Objective 15-2) Explain the main difference between statistical sampling.
and not statistical. What are the three main parts of statistical methods?
and not statistical?

The three main parts of statistical and non-statistical methods are:

Sample Planning
2. Sample selection
3. Evaluation of the results

Statistical Method

Apply the mathematical rules, allowing the quantification of risk

sampling in the planning of the sampling and the
Evaluation of your results

Non-Statistical Method
The auditor selects the elements in the sampling that he considers will provide the
most useful information.

15-3 (Objective 15-3) Explain the difference between sampling with replacement and sampling without replacement.
Replacement. What method do auditors normally use? Why?

Replacement Sampling
An element can be included more than once.

Sampling Without Replacement

 An element can only be included once.

15-4 (Objective 15-3) What are the two types of simple selection methods?
random sample? Which of the two methods do auditors use more and why?
simple random sample
systematic selection of samples

The advantages of using computer programs to select random samples are

time savings, the lower probability of error by the auditor in the selection of
the numbers and automatic documentation. Since most auditors have
access to the computer and to electronic spreadsheets or to the generating programs
of random numbers, they often prefer to use computer generation of
random numbers more than other methods of probabilistic selection.

15-5 (Objective 15-3) Describe the systematic selection of the sample and explain how
that the auditor would choose 35 numbers from a population of 1,750 elements through
of this approach. What are the advantages and disadvantages of systematic selection of
samples?

The auditor calculates an interval and then methodically selects the elements for the
sample based on the size of the interval. The interval is determined by dividing the
population size compared to the desired number of sample elements. For example,
if a population of sales invoices varies from 652 to 3,151 and the desired size of the
The sample is 35, the interval will be 20 [(3,151–651) /35]. The auditor must now select
a random number between 0 and 19 in order to determine the starting point for the sample. If the
the randomly selected number is 9, the first element in the sample will be invoice number
661 (652+9). The remaining 124 elements will be 681 (661+20), 701 (681+20), and so on.
successively up to the element 3.141.

15-6 (Objective 15-4) What is the purpose of using non-statistical sampling for the
tests of controls and substantive tests of operations?

The application of non-statistical audit sampling in the testing of operations to see

if there are deviations from controls and monetary errors. The audit sampling is
applies control tests and substantive tests of operations to a set of 14
well-defined steps. The steps are divided into 3 sections: sample planning,
sample selection and execution of audit procedures, and evaluation of
the results. It is important to follow these steps very carefully in order to ensure that
both the audit and the sampling aspects of the process are applied in a way
adequate.
15-7 (Objective 15-2) Explain what block sampling means and
Describe how an auditor would obtain five blocks of 20 sales invoices.
a sales diary.

Block sampling is the selection of several elements in

sequence. Once the first element of the block is selected, the next one is chosen
automatically the rest of the block.

It would be obtained if a total sample of 100 sales invoices is selected, so that the amount
of blocks should be reasonable with the number of invoices. Generally, it is acceptable to use
samples in blocks only if a reasonable number of blocks is used

15-8 (Objetivo 15-5)Defina cada uno de los siguientes términos:

a. Acceptable risk of control risk assessment too low (ARCR).

b. Calculated upper exception rate (TESC).

c. Estimated exception rate of the population (TEEP).

d. Tolerable exception rate (TER).

a) Acceptable risk of the control risk assessment too low (ARCR).

Risk that the auditor is willing to assume by accepting a control as effective or a rate
of erroneous financial statements as tolerable when the exception rate in the
the population is greater than the tolerable exception rate.
b) Calculated upper exception rate (TESC). Upper limit of the rate of
likely exception of the population; the highest rate in the population to a RAERC
determined.
c) Estimated exception rate of the population (TEEP). Exception rate that the
The auditor expects to find in the population before starting the tests.
d) Tolerable exception rate (TER). The exception rate that the auditor will allow in the
population and yet would still be willing to conclude that the control operates in a way
effective and that the amount of monetary irregularities in the established operations
during the planning it is acceptable.

15-9 (Objective 15-5) Describe what is understood by a sampling unit. Explain why.
What differs the sampling unit for verifying the existence of recorded sales of
the sampling unit to test for the possibility of missed sales.

It is to make it suitable for the objectives of the audit tests, for what
general the definition of the population and the planned audit procedures dictate the

appropriate sampling unit.

If the goal is to determine whether the appropriate amount of the described goods...

the customer's order is shipped and billed correctly, it is possible to define the unit of

sampling as per the customer's order, the shipping document or the duplicate of the invoice

sale.

15-10 (Objective 15-5) Distinguish between TET and TESC. How is each one determined?

LaTET represents the exception rate that the auditor will allow in the population and is still
willing to conclude that operational control is effective and that the amount of errors
monetary in the operations established during the planning is acceptable.

The result of an auditor's criterion. The adequacy is a matter of

materiality and consequently is affected both by the definition and by the
importance of the attribute in the audit plan.

How it is determined: If it is only used in an internal control to support an evaluation.

the risk of low control for a goal, the TET will be lower for this attribute than if
multiple controls would have been used to support a control risk assessment
low for the objective. The TET has a significant impact on the sample.
In the audit for exceptional rates, the auditor is mainly interested in knowing what the possible could be
higher exception index, and not in the amplitude of the interval. This limit is called
estimated exceptional upper otasa calculated (TESC) in control tests and in
the substantive tests of operations.
How it is determined: The auditor may consider it in the context of the objectives
specifics of the audit. For example, when reviewing evidence from shipping documents
missing, the auditor determines whether a threshold rate of 4% indicates a control risk.
acceptable for the objective of existence.

15-11 (Objective 15-1) Distinguish between a sampling error and a non-sampling error.
How can each one be reduced?

The sampling error occurs because the auditor has only examined a portion of the population.
Given that it is based on a single sample, there is a significant probability that the rate
the exception rate of the sample and the actual exception rate of the population differ.

15-12 (Objective 15-4) Explain what is understood by an attribute in sampling.

for control tests and substantive tests of operations. What is the
source of the attributes chosen by the auditor?

For the audit sampling in the tests of controls and substantive tests of
operations, that risk is called acceptable risk of risk assessment of
 Too low control (RAERC). The RAERC is the risk that the auditor is willing to
to run in the acceptance of a control as effective when the true exception rate
of the population is greater than the TET.

15-13 (Objective 15-4) Explain the difference between an attribute and a condition.
exception. Indicate the exception condition for the audit procedure: the
The sales invoice copy has been endorsed, indicating the completion of the
internal verification.
In the attribute, there is the sales invoice number in the sales journal, while in

no exception, in the tax the amount and other data in the customer's order that match the

duplicate of the sales invoice and in exception the number and description of the product in the

The customer's order differs from the information on the duplicate of the sales invoice.

15-14 (Objective 15-5) Identify the factors that an auditor uses to decide the
Appropriate TET. Compare the sample size for a TET of 6% with that of
3% and all other factors remain the same.

The TET represents the exception index that the auditor will allow in the population and is still
willing to conclude that control in operation is effective and that the amount of errors
monetary in the operations established during planning is acceptable. For example, it
it will require a large sample for a 3% TET for an attribute 8 and for a 6% TET the
sample is inferior. This means that the auditor has decided that even if 6% of the
copies of the sales invoices have not been approved for credit, the control of
Credit approval remains effective in terms of the assessed control risk included
in the audit plan.

15-15 (Objective 15-5) Identify the factors that an auditor uses to decide the
Appropriate RAERC. Compare the sample size of a RAERC of 10% with
the 5%, while all other factors remain the same.

Because the ARAC is a measure of the risk that the auditor is willing to take, the
The main consideration is the extent to which the auditor plans to reduce the control risk.
evaluated as a basis for the scope of the tests on the details of the balances, the RAERC
it will usually be evaluated at a lower level when it comes to an audit of a
public company because the auditor will carry out extensive tests on the controls
to support his opinion regarding internal control over financial reports. The
The adequacy of the RAERC and the scope of the control tests depend on the assessed level of
control risk in the audit of a private company. That the exception rate of not
over the TET.

15-16 (Objective 15-5) Identify the relationship between the following:

a. RAERC and the sample size. That the acceptable risk of risk evaluation
of too low control (RAERC) is a part of the sample, that is, the
RAERC will always depend on the sample size.

b. Size of the population and size of the sample. That the size of the sample...
take out the size of the population, that is, that we need a x population to
to be able to take a sample.

c.TET and the sample size. The TET represents the exception index that the
the auditor will allow in the sample and is still willing to conclude that control in
operation is effective and that the amount of monetary errors in the operations
established during planning is acceptable.

d.TEEP and the sample size. If the estimated exception rate of the population
(TEEP) is low, a relatively small sample size will satisfy the rate of
tolerable exception of the auditor. This is because an estimate is required.
less precise statistic. In other words, to be more accurate, an estimation of
the exception rate of the population should be based on more information, which
it implies a larger sample. As the TEEP approaches the auditor closer to the
tolerable exception rate, the need for greater precision arises.

15-17 (Objective 15-7) Suppose the auditor has selected 100 invoices from
sales of a population of 100,000 to verify internal price control
and extensions. Determine the TESC at 5% of RAERC if there were three exceptions.
in the sample through attribute sampling. Explain the meaning of the
statistical results in terms of auditing.

In real audit situations, auditors do not take repeated samples from populations.
known, but they take a sample from an unknown population and obtain a number
specific exceptions in that sample. But the knowledge of the distributions of
Sampling allows the auditor to formulate statistical statements about the population.
For example, if the auditor selects a sample of 50 sales invoices to test if they have
the attached shipping documents and find an exception, the auditor could examine
the probability table of table 15-7 and to know if there is a probability of 20.25% that
the sample comes from a population with an exception rate of 5%, and a probability
 of 79.75% (1 − .2025) that the sample was taken from a population with some other rate
exception. It is also possible to confirm when examining the column of probabilities
Accumulated from table 15-7, there is a 27.94% probability that the sample
come from a population with more than a 5% exception rate and a 72.06% (1 − .2794)
the probability that the sample was taken from a population with an exception rate
of 5% or less. Since it is possible to similarly calculate the distributions of
probabilities for other exception rates of the population can be examined in the
added to obtain more specific statistical conclusions about the population
unknown that is being sampled. These sampling distributions are the basis for
the tables used by auditors for attribute sampling.

15-18 (Objective 15-5) Explain what the term analysis means.

exceptions and analyze their importance.

The analysis of internal control exceptions or a letter of recommendations, based on the

results of the internal control evaluation, where inconvenient situations are detected,
deficiencies, errors, inconsistencies, and possible internal control exceptions, which
They must be informed and initially analyzed in draft form, in order to achieve full security.
from its detection and thus not indicating aspects that can be easily refuted, losing weight
professional the auditor and therefore credibility.

15-19 (Objective 15-5) When TESC exceeds TET, what courses of action can be taken?
Follow the auditor? Under what circumstances should each of these be followed?

When the TES is greater than the TET, a specific action must be taken, it should be used
statistical sampling or attribute sampling, to be considered acceptable the
The TESC population must be less than or equal to the TET when these two are based on the RAERC.

15-20 (Objective 15-3) Distinguish between probabilistic selection and measurement

statistics. Indicate the circumstances under which it can be used.
the other.

Probabilistic selection: it is a method for choosing a sample such that each

each element of the population has a known probability of being included in the sample
and this is selected through a random process.

Statistical sampling differs from non-statistical sampling because through

application of mathematical rules, allows for the measurement of sampling risk in the
planning the sample and evaluating the results.
15-21 (Objective 15-7) State the important decisions that the auditor must make.
take when using attribute sampling. Indicate the most important considerations.
important factors that are required in making each decision.

The auditor has decided to use audit sampling whenever the auditor plans.
obtain conclusions about the population from a sample. The auditor must examine
the audit program and decide the audit procedures such as:
Review the sales operations
●Observe if the tasks of the accounts receivable manager are separated from the handling of
cash.