[jeff]

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Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[Iggy_1985]

I like the explanation of why it's A and not C, but I wouldn't over-think D too much, because testing controls in general is part of the audit process, but like you said, pointless if it doesn't relate to misstatements in the F/S

FAR - 89 (8/19/14) Wiley TB, Wiley Book, Books from School, Ninja Audio/Notes
AUD - 92 (10/14/14) Wiley TB, Wiley Book, Ninja Audio/Notes
BEC - 82 (5/8/15) Ninja MCQ, A few Becker lectures during commute
REG - 84 (8/14/15) Ninja MCQ, A few Becker lectures during commute

Letters after my name soon!

[johnny_debt]

@Iggy_1985, thanks, these question really make me pull my hair out.

AUD - 91
BEC - 84
FAR - 91
REG - 91

[Anonymous]

Just to be clear for the transaction cycles, the accounting department receives the PO, Receiving report, and Vendor's invoice to make sure everything matches up. Then it approves and created a vouchers payable? By creating a vouchers payable aren't you also recording in the purchases department? Wouldn't this technically be authorization AND recording?

[Iggy_1985]

I think the treasurer would actually authorize it by signing a check, to create the vouchers payable you just make sure everything matches without discrepancies.. the person in accounts payable who does that would record it in a vouchers register and send a copy of the voucher to general accounting to do the recording.. I dunno I suck at this stuff, thats just what I got from looking at a purchasing flowchart in the wiley book

sorta like this one

https://4.bp.blogspot.com/-BNhGNU3X5cY/Tx-JAZMe_TI/AAAAAAAAAGA/Mx4tYH9apjg/s1600/Flowchart-VoucherPayable.png

FAR - 89 (8/19/14) Wiley TB, Wiley Book, Books from School, Ninja Audio/Notes
AUD - 92 (10/14/14) Wiley TB, Wiley Book, Ninja Audio/Notes
BEC - 82 (5/8/15) Ninja MCQ, A few Becker lectures during commute
REG - 84 (8/14/15) Ninja MCQ, A few Becker lectures during commute

Letters after my name soon!

[Iggy_1985]

okay I seriously hate sampling.. I wrote on my note sheet for variables sampling that an increased risk of incorrect acceptance or the risk of assessing control risk too low means a decreased sample size, while an increased risk of incorrect rejection or the risk of assessing control risk too high also means a decreased sample size. (From Wiley)

So then I got this Ninja MCQ

How would increases in tolerable misstatement and assessed level of control risk affect the sample size in a substantive test of details?

A. Increases in tolerable misstatement and assessed level of control risk would increase the sample size.

B.

An increase in tolerable misstatement would increase the sample size; an increase in assessed level of control risk would decrease the sample size.

C. An increase in tolerable misstatement would decrease the sample size; an increase in assessed level of control risk would increase the sample size.

Incorrect D. Increases in tolerable misstatement and assessed level of control risk would decrease the sample size.

The correct answer is C, but I said D. I know an increase in tolerable misstatement decreases the sample size, but why does an increase in the level of control risk increase the sample size if both the risk of assessing control risk too low or too high decrease the sample size? I just can't wrap my head around this junk.

FAR - 89 (8/19/14) Wiley TB, Wiley Book, Books from School, Ninja Audio/Notes
AUD - 92 (10/14/14) Wiley TB, Wiley Book, Ninja Audio/Notes
BEC - 82 (5/8/15) Ninja MCQ, A few Becker lectures during commute
REG - 84 (8/14/15) Ninja MCQ, A few Becker lectures during commute

Letters after my name soon!

[Anonymous]

Because there is a direct relationship between RMM and substantive tests. Higher RMM means more substantive tests, and lower RMM means less substantive tests.

That is actually a very good question and it took me a while to figure out.

[Anonymous]

The treasurer doesn't authorize as (s)he is the custodian of cash

[Anonymous]

Iggy, you have to keep in mind that AR = CR x IR X DR

If CR goes up and nothing else changes, then AR will increase as well, but the question doesn't mention higher audit risk, so if the auditor wants to keep the same audit risk and the control risk is higher, then the auditor needs to decrease IR or DR, we all know that the auditor can't control IR, so to decrease DR the auditor needs to do more testing – the more the auditor tests the higher are the chances of catching a material misstatement, thus the lower is the DR, or the risk that the auditor will fail to detect a misstatement.

[Iggy_1985]

That makes sense in terms of the audit risk model, and why an increase in the assessment of CR increases the sample size (more testing), but I'm still confused as to why assessing CR too low or too high decreases the sample size (less testing)

FAR - 89 (8/19/14) Wiley TB, Wiley Book, Books from School, Ninja Audio/Notes
AUD - 92 (10/14/14) Wiley TB, Wiley Book, Ninja Audio/Notes
BEC - 82 (5/8/15) Ninja MCQ, A few Becker lectures during commute
REG - 84 (8/14/15) Ninja MCQ, A few Becker lectures during commute

Letters after my name soon!

[Anonymous]

Now I am confused! I thought that assessing control risk too high = more testing, which would lead to an inefficient audit

[Iggy_1985]

Maybe this reference from Wiley Test Bank is wrong because I can find the attributes sampling reference in the book but not the variables one that says they both decrease sample size

FAR - 89 (8/19/14) Wiley TB, Wiley Book, Books from School, Ninja Audio/Notes
AUD - 92 (10/14/14) Wiley TB, Wiley Book, Ninja Audio/Notes
BEC - 82 (5/8/15) Ninja MCQ, A few Becker lectures during commute
REG - 84 (8/14/15) Ninja MCQ, A few Becker lectures during commute

Letters after my name soon!

[Iggy_1985]

hmmm…. nope I found powerpoints from an auditing textbook that state the same thing, both risk of incorrect acceptance and rejection decrease sample size

FAR - 89 (8/19/14) Wiley TB, Wiley Book, Books from School, Ninja Audio/Notes
AUD - 92 (10/14/14) Wiley TB, Wiley Book, Ninja Audio/Notes
BEC - 82 (5/8/15) Ninja MCQ, A few Becker lectures during commute
REG - 84 (8/14/15) Ninja MCQ, A few Becker lectures during commute

Letters after my name soon!

[Anonymous]

Does it say that when the auditor accepts a higher risk of incorrect rejection then the sample size is reduced?

[Iggy_1985]

The figures I found both just say increases in each decrease sample size. My audit book from school last year says “If auditors commit incorrect rejection and initially conclude that the account balance is misstated, the client typically requests that the auditors expand the sample size or gather additional evidence before making an adjustment to the financial statements.” So I dunno why the figures in Wiley TB and that other audit book companion site both say as risk of incorrect acceptance/rejection increase they decrease sample size.. ughh

FAR - 89 (8/19/14) Wiley TB, Wiley Book, Books from School, Ninja Audio/Notes
AUD - 92 (10/14/14) Wiley TB, Wiley Book, Ninja Audio/Notes
BEC - 82 (5/8/15) Ninja MCQ, A few Becker lectures during commute
REG - 84 (8/14/15) Ninja MCQ, A few Becker lectures during commute

Letters after my name soon!

[Anonymous]

The only thing I can think of is that the auditors acceptance of a higher incorrect acceptance/rejection risk would mean a smaller sample size since the auditor is willing to accept a higher risk. Let's see what others have to say.

[Author]

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