Ch 7 - Audit Data Analytics

Identify the most relevant audit procedure that would enable the auditor to resolve the suspected issue... The details of invoices for equipment repairs were not clearly identified or explained to the accounting department employees. The auditor suspects that the bookkeeper incorrectly recorded the repairs as fixed assets

Scan the debits to the fixed asset accounts and agree selected amounts to vendors' invoices and management's authorization

Identify and briefly describe the five steps of performing ADA and place them in the proper order

1. Plan the ADA - consider the industry of the client. For example, revenue or inventory for a grocery store is much different than a construction company. 2. Access and prepare the data for ADA - determine that the data is complete and verify that the data is the same data used to prepare financial statements. 3. Consider the relevance and reliability of data used - using independent sources to obtain more reliable data 4. Perform the ADA - actually doing the ADA 5. Evaluate the results and conclude whether the special purpose and specific objectives of performing the ADA have been achieved - evaluating inventory turnover relative to the client's industry and obtaining information based upon that statistic.

When performing ADA as a risk assessment procedure, a notable item:

All of these answer choices describe notable items

Audit data analytics can be used _______

All these answer choices are correct

Identify the most relevant audit procedure that would enable the auditor to resolve the suspected issue... The auditor suspects that the entity's controller has overstated sales and accounts receivable by recording fictitious sales to regular customers in the entity's accounting records

Examine the entity's shipping documents to verify that the merchandise that produced the receivable was actually sent to the customer. Send request to confirm the entity's accounts receivable at an interim date

Identify the most relevant audit procedure that would enable the auditor to resolve the suspected issue... The auditor suspects that vouchers were prepared and processed by an accounting department employee for merchandise that was neither ordered nor received by the entity.

Examine the supporting purchase orders and receiving reports for selected paid vouchers

Are the quality of internal controls relevant when evaluating the reliability of data to be used in ADA? Explain why or why not, and provide an example

If internal controls are weak, the data set may contain misstatements and inaccuracies, or the data may be incomplete. The auditor may need to consider whether the data set should be subjected to audit procedures to verify the data before using it to draw an audit conclusion.

Explain how applying ADA as a substantive test differs from ADA as a risk assessment procedure.

In the risk assessment procedure ADA is used when matching the payroll data with vendor data for matching residential address which shows high risk of fraud. In substantive testing ADA is used for matching information in the accounting fraud with the information on underlying document like vouching of quantity is mentioned in the invoice with quantity mentioned in the shipping bill.

Identify the most relevant audit procedure that would enable the auditor to resolve the suspected issue... The auditor suspects that the entity is inappropriately increasing the cash reported on its balance sheet by drawing a check on one account and not recording it as an outstanding check on that account, and simultaneously recording it as a deposit in a second account

Prepare a schedule of interbank transfers

Identify two analytical techniques that could be used as part of risk assessment ADA and how they could be useful

Regression analysis is a statistical process that involves estimating a prediction equation that expresses an item of interest (commonly known as the y or dependent variable) in terms of other data fields (the x or independent variables). This is useful in determining if revenues are seasonal if a time-series regression is conducted. Cluster analysis is the process of discovering groups (termed clusters in data science) of similar items in a set of data; items in the same group are similar, while items in different groups are not as similar. This is useful for an auditor if they don't know much about a particular data set. A cluster analysis would be performed and characteristics of the groups be found.

What should an auditor do if the conclusion from performing ADA as a substantive test does not agree with a previous conclusion regarding internal controls?

The auditor should reassess internal controls at a higher level and reevaluate the implications of a high control risk assessment on detection risk and the auditor's audit strategy.

Which of the following is an example of data that needs to be cleaned before it can be analyzed?

The data has dates in two different formats (MM/DD/YY and DD/MM/YY)

Which three of the following key issues are considered when planning an audit data analytics (ADA) application?

The overall purpose of the audit data analytics application and how it will contribute to the balance of the audit Selection of financial statement items, accounts or disclosures, and related assertions to be audited Selection of the audit population being analyzed or tested using audit data analytics

Advances in the technological landscape _______

are providing opportunities to rethink how an audit is performed

Audit data analytics can be used _______

at virtually any phase of the audit

Audit data analytics should ______

be customized to the individual client and industry

One of the steps in the five step AICPA process to follow when planning, performing, and evaluating results from audit data analytics (ADA) is _______

consider the relevance and reliability of the data used

A key aspect of preparing the data for ADA is:

determining if the data is complete

When the auditor is performing audit data analytics (ADA) as a substantive test of details of a population of transactions or balances, the auditor will have _______

evaluated inherent risk

Nonsampling risk:

is the risk that an auditor arrives at an inappropriate conclusion for a reason unrelated to sampling issues

As with all audit procedures, auditors must _______

must carefully plan the nature, timing, and extent of audit data analytics (ADA) to be used for each client

The auditor is most likely going to perform audit data analytics (ADA) as a substantive test when the auditor has _______

performed tests of controls and concluded that the entity has strong controls

The critical difference between statistical and nonstatistical sampling is:

the use of the laws of probability in statistical sampling to determine sample size and develop a confidence interval around the results of the sample

The choice of using audit sampling versus audit data analytics (ADA) is often a matter of _______.

what is most effective and efficient in determining whether an assertion is presented fairly, in all material respects