Integrated Audit Practice Case

SEVENTH EDITION

Assignment FIVE Discussion Questions

1. For this assignment, the expected population exception rate (EPER) was specified as 1% or 2%, the tolerable exception rate (TER) was specified as 7% or 8%, and the acceptable risk of overreliance (ARO) was specified as 10% for all attributes in the audit of acquisitions

transactions. Indicate how each of these variables (EPER, TER, and ARO) should be

determined. What is the effect on sample size of lowering each variable (EPER, TER, and

ARO)?

2. When the computed upper exception rate (CUER) exceeds the tolerable exception rate

(TER), the auditor will likely increase the assessed level of control risk and increase one

or more related substantive tests. What other courses of action are available to the auditor

when CUER exceeds TER?

3.The study and evaluation of internal controls in Assignment 4 identified deficiencies in

internal controls over acquisitions. Did any of these deficiencies result in misstatements

in the recording of transactions? Explain why deficiencies in internal controls might not

always result in significant misstatements when transactions are recorded.

4.You performed tests of controls and substantive tests of transactions for acquisitions

using nonstatistical sampling. The tests of controls and substantive tests of transactions

for sales transactions were performed using statistical sampling. Indicate the significant

differences in these approaches in planning the sample, performing the audit procedures,

and evaluating the results of the sample.