Imagine that you are a new auditor scheduled on a year-end audit engagement. Your senior has instructed you to test the Accounts Receivable account. The account is large and contains many customer balances, so you have been instructed to use sampling techniques for your testing.
Required:
1 - Describe the audit risk model explaining the relationships of tests of details of balances detection risk and analytical procedures detection risk. 2 - What is the detection risk related to your task of auditing Accounts Receivable? 3 - Does the risk of incorrectly rejecting the Accounts Receivable balance affect your audit risk when using the audit risk model? What negative impact does incorrect rejection have on the audit?
W4-- Assume that you are assigned the task of testing internal controls over financial reporting for the Van Jacobs Corporation year 2010 audit. Van Jacobs Corporation has a December 31 fiscal year end. Due to poor controls that existed previously, Van Jacobs implemented a new internal control system that became operational on February 14, 2010 and did not change throughout the rest of the year. How much testing would you need to perform on the previous system to issue the 2011 opinion on ICFR? Justify your answer.