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statement bounds expressed in monetary use the statistical inference process QUESTIONS 17-1 (OBJECTIVE 17-1) What major difference between (a) tests of controls and substantive tests of transactions and (b) tests of details of balances makes attributes sampling inappro priate for tests of details of balances? 17-2 (OBJECTIVE 17-2) Define stratified sampling and explain its importance in auditing How can an auditor obtain a stratified sample of 30 items from each of three strata in the confirmation of accounts receivable? 17-3 (OBJECTIVE 17-2) What is the relationship between ARIA for tests of details of balances and ARO for tests of controls? 17-4 (oBJECTIVE 17-2) Distinguish between the point estimate of the total misstatements and the true value of the misstatements in the population. How can each be determined? 17-5 (OBJECTIVE 17-2) Evaluate the following statement made by an auditor: On every aspect of the audit where it is possible, I calculate the point estimate of the misstatements and evaluate whether the amount is material. If it is, I investigate the cause and continue to test the population until I determine whether there is a serious problem. The use of statis- tical sampling in this manner is a valuable audit tool ATION OF THE AUDIT PROCESS TO THE SALES AND COLLECTION CYCL
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As a test of control, the auditor would look for evidence of that authorization-most commonly the signature /initials of the Finance Director on a copy of the payroll summary Substantive tests recap Ans. Objective 17-1 Tests of control and substantive testing come up in the Principles of Audit and Reporting course, and are topics that can sometimes be confusing. In this short article we set out the key differences between the two tests. A quick recap tests of control . Substantive tests are the procedures that the auditor undertakes to detect possible misstatements that may exist in the financial statements, that is, testing the numbers at the year end. . .When carrying out a substantive test, the auditor is testing to .Test of control involve the auditor testing processes or . In every organization, there will be business and accounting .There are a variety of different controls that can be broadly ensure that the figures included in the financial statements can be traced back to source documents andmeet one or more of the audit assertions There are different assertions for items from the Profit or Loss Account, Balance Sheet, and disclosures. procedures carried out by staff at the client. systems which should have appropriate controls in place . .Remember that the auditor wont test every number -he wil classified into five categories. The categories of control activities are; Authorization, Performance Reviews, Information Processing, Physical, and Segregation of Duties (APIPS). select a sample based on risk,judgment etc. .Using the payroll example above- an example ofa substantive test would be the auditor selecting a sample of employeespaid in the year, and agreeing amounts paid to the pay slips and bank statements .Testing controls involve the auditor selecting some of these controls that the client carried out during the year, and checking to make sure that they operated effectively An example of a control could be where the client had a control whereby the monthly payroll summary had to be approved by the finance director before payment was made .

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