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Audit Hypothesis Model


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Step 8
Figure out the Ur factor based on reliability level
Step 18
Determine whether the sample evidence supports the fair statement of the client's book value
Step 11
Calculate required sample size = ((Ur x SD x N)/A)squared
Step 14
Analyze errors noted in the sample and the causes
Step 13
Perform audit procedures on sample items selected for substantive tests
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
Step 7
Set the risk of incorrection rejection at 5% or lower ( this is a complement of reliability)
Step 16
Calculate estimated audited value
Step 9
Define materiality for each account balancce, judgement determined based on different factors
Step 4
Test control risk, no need if no or weak internal controls
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 15
Calculate projected error A1= Ur x SE x N
Step 1
Make preliminatry assessment of control risk
Step 12
Randomly select the additional sample items using random number tables or systematic selection
Step 6
Define audit risk at 10% or lower (usually 5%), and calculate the risk of incorrect acceptance
Step 2
Decide which controls to [lace reliance on to limit substantive testing.
Step 17
Calculate a desicion interval or precision interval (EAV plus or minus projected error)
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 3
Set Desired Reliability level and tolerable rate for complance tests (usually 95% reliability and 5% tolerable rate)

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