Tutorial solution:

4.3

1. Risk assessment procedures are audit procedures performed to obtain an understanding of

the entity and its environment, including internal control to identify and assess the risk of
material misstatement, whether due to fraud or error , at a financial statement level and
assertion level.

2. Further audit procedures are test of control and substantive procedures (test of detail and
analytical review procedures) to respond to the risks identified at an assertion level

3. Recalculation – checking the mathematical accuracy of documents or records

Re-performance – the auditor’s independent execution of procedures or controls that were
originally performed as part of the entity’s internal control
Observation – looking at a process or procedure performed by others or observing the
performance of a control activity
Analytical review – evaluating financial information through analysis of plausible
relationships among both financial and non-financial information
Inspection – examining records and documents as well as physical examination of an asset
External confirmation – obtaining a direct written response from a third party to a
request/query of the auditor
Inquiry – seeking information from knowledgeable persons within and outside the entity.

4. The difference between tests of controls and substantive procedurs lies with the objective
of the test.
The objective of a test of control is to gather evidence surrounding the effectiveness of
control procedure
The objective of a substantive procedure is gain evidence surrounding the assertion

5. Although observation is a tool available to the auditor to test controls, it is not the most
effective as individuals are likely to perform controls according to procedures when
“someone is looking”. Other procedures should be used in addition to the auditor’s
observation of a control in order to obtain persuasive evidence.
4.6

a) See 4.3
b) Recalculation – test of control and substantive
Re-performance – test of control and substantive
Observation – test of control
Analytical review – substantive
Inspection– test of control and substantive
External confirmation – substantive
Inquiry – test of control and substantive
c) See below for anser
d) All procedures can be used by the auditor as risk assessment procedures. The 7 procedures
are tools available to the auditor and can be used as the auditor deems fit.
e) Lawyers, bankers, debtors, creditors, prior auditors, engagement team, actuaries, experts
C.

  Test of control   substantive procedures

Control: All purchase orders over N$ 1million should be Inspecting a sample of assets to obtain
authorised by the senior purchase officer. Audit procedure: audit evidence surrounding the existence
Inspecting a sample of purchase orders over N$ 1 million for of the assets
evidence of the authorising signature of a senior purchase
Inspection officer  
Observation Observing the staff performing an inventory count   N/A
Developing an expectation of the sales
revenue for the year using the cost of sales
Analytical review N/A   and applying the sales margin
inquiring with the human resources
manager about the approved percentage
increase in salaries in order for the auditor
inquiring with the financial manager what threshold to to develop an expectation of the payroll
investigate discrepancies when reviewing the journals posted expense using prior year payroll expense
Inquiry by the accountant   balance
reperfoming the month end reconciliation
Reperfomance reperfoming a sample of monthly bank reconciliations   for bank balances to
Recalculating the depreciation expense to
obtain evidence over the accuracy of
Recalculation N/A   depreciation expense recorded
Confirming the bank balances with the
Confirmation N/A   bankers
1. Sampling involves the application of audit procedures to less than 100% of the items within
a population of audit relevance such that all sampling units have a chance of selection in
order to provide the auditor with a reasonable basis on which to draw conclusions about the
entire population
2. Sample
3. The sample needs to be representative of the entire population as the sample needs to
provide the auditor with a reasonable basis on which to draw conclusions about the entire
population
4. Sampling risk is the risk that the auditor’s conclusion based on a sample may be different
from the conclusion that would be reached if the entire population were subjected to the
same audit procedure.
5. 1. Determine the objective and the procedures to be performed
2. confirm the population is appropriate and complete
3. Determine sample size and select the sample
4. Perform the audit procedures and analyse the nature and cause of the deviations
6. The population should be appropriate and complete
7. Sampling units are individual items constituting a population e.g individual debtors in a
debtors legers, sales invoices in sales ledger,
8. Confidence level, tolerable misstatement, expected misstatement, population size
9. Stratification is process of dividing a population into subpopulations, each of which is a
group of sampling units which have similar characteristics