Problem 2

a. Auditing standards require auditors to gain an understanding of their client's internal controls. How do they use this information? For what purposes?

b. Auditors also recognize that even strong internal controls do not guarantee that the financial statements are free from potential misstatements. Explain four reasons that even the best internal control systems may fail to prevent material misstatements from errors or fraud.

Problem 3 Auditors often use sampling techniques when obtaining evidence during an audit.

a. Define the term "audit sampling" without using the words "audit" or "sample".

b. What underlying assumption doauditors make when they arrive at a conclusion using audit sampling?

c. Sampling may be performed on a statistical or nonstatistical basis. Explain three advantages of statistical sampling.