| Term | Definition |
|---|
| Step 1 | Make preliminatry assessment of control risk |
| Step 2 | Decide which controls to [lace reliance on to limit substantive testing. |
| Step 3 | Set Desired Reliability level and tolerable rate for complance tests (usually 95% reliability and 5% tolerable rate) |
| Step 4 | Test control risk, no need if no or weak internal controls |
| Step 5 | Make final evaluations of internal control risk for each class if transactions, the risk percentage is proportional to the chance that there is enough error to create a material misstatement in the account balance |
| Step 6 | Define audit risk at 10% or lower (usually 5%), and calculate the risk of incorrect acceptance |
| Step 7 | Set the risk of incorrection rejection at 5% or lower ( this is a complement of reliability) |
| Step 8 | Figure out the Ur factor based on reliability level |
| Step 9 | Define materiality for each account balancce, judgement determined based on different factors |
| Step 10 | Determine amount of tolerable error to place in the sample size formule, tolerable error is based on the risk of incorrect rejection, use the table to set multiplication factor (5% = .543) |
| Step 11 | Calculate required sample size = ((Ur x SD x N)/A)squared |
| Step 12 | Randomly select the additional sample items using random number tables or systematic selection |
| Step 13 | Perform audit procedures on sample items selected for substantive tests |
| Step 14 | Analyze errors noted in the sample and the causes |
| Step 15 | Calculate projected error A1= Ur x SE x N |
| Step 16 | Calculate estimated audited value |
| Step 17 | Calculate a desicion interval or precision interval (EAV plus or minus projected error) |
| Step 18 | Determine whether the sample evidence supports the fair statement of the client's book value |
| Step 19 | If evidence does not suppoer fair statements, request a reevaluation of the account balance, and then reaudit to see if it falls within the decision inteval |
Combine with other sets
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