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Audit Chapter 8 Solutions Manual

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Solutions for Chapter 8

Tools to Gather Audit Evidence

Review Questions:

8-1. The three main tools the auditor might use in gathering and evaluating audit evidence are:

• Audit sampling • Generalized Audit Software • Analytical procedures

8-2. Non-sampling risk is the risk that the auditor makes an improper assessment of inherent and/or control risk or did not apply audit procedures carefully. It can be minimized through: (1) Good hiring, training and supervision practices; and (2) Careful and knowledgeable review of audit documentation and audit procedures.

Sampling risk is the risk that the misstatement projections based on the sample results lead to the wrong conclusion about the population because of a non-representative sample. Sampling risk can be reduced by increasing the sample size – to the extreme of auditing the entire population therefore eliminating sampling risk altogether.

8-3. Factors to consider when choosing between statistical and nonstatistical sampling include: • Need to quantify and control sampling risks. • Additional cost of designing, selecting, and evaluating a statistical sample. • Availability of computer software to assist in designing, selecting, and/or evaluating the sample. • Ability of the audit staff to properly implement statistical sampling.

8-4. a. Tolerable deviation rate depends on the significance of the control procedure being tested and the degree of reliance the auditor wishes to place on it. The auditor, in essence, considers the effect of the failure on potential material misstatements in the financial statements. The tolerable failure rate is the rate beyond which the failure of an important control procedure could lead to material misstatements in the financial statements.

b. Expected failure rate is…...

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