I discuss sampling and sample size in Chapter 8. Also, in low-risk situations, sample sizes (the number of records you look at) will be set at normal levels. That means that as a staff associate, you’ll more than likely have the pleasure of working these easier engagements early in your career. Many audit firms assign less experienced auditors to work low-risk engage- ments and save the big guns for the tough cases.

This is a method of recognizing construction revenue and expenses in stages that can be very subjective and open to error. In contrast is revenue recorded under percentage of comple- tion. (You can find out more about payroll accruals in Chapter 11.) ✓ The transactions are easy to measure: Straight-out revenue and expense transactions the company records when they happen are easy to measure. For example, each month the company makes an accrual for payroll earned but not paid. ✓ You encounter many recurring transactions: These types of transac- tions take place every month. The ledger also reports the current amount each customer owes. The accounts receivable subsidiary ledger is a listing of all customers and is usually ordered alphabetically by customer name or by customer account numbers. Here are three characteristics of company transactions indicating low risk: ✓ Like transactions are handled in the same way: For example, all cus- tomers who purchase on account are set up in the accounts receivable subsidiary ledger, and the invoice amount due is immediately booked. Tailoring the audit to a low-risk situation After looking at major financial statement accounts or classes of transac- tions, if you decide the risk of material misstatement is relatively low, you design your audit procedures accordingly.

In this section, I explain how to proceed with a low- risk client and a high-risk client. You must decide if you can use normal audit procedures (for a low-risk assessment) or if you have to use extended procedures (for a high-risk assessment). 87Chapter 5: Assessing Audit Risk Evaluating Your Audit Risk Results After completing your risk assessment procedures and deciding if any mis- statements are material, your last step in this phase of the audit is to evalu- ate your findings.

Auditing for dummies pdf