Part 1 (500-750 words)
In preparation for the Bovar Companyâ€s year-end audit, your manager has asked you to create a document about auditing principles and the code of conduct to share with the rest of the internal auditors. You know that the Institute of Internal Auditors (IIA) provides professional guidance and a code of ethics for internal auditors, but you need to revisit that information to create the memo and include the following:
- Auditing principles
- Code of conduct
Part 2 (200-300 words)
To assess Bovarâ€s liability for the upcoming external audit, discuss the following topics with your team:
- What is the relationship of risk and materiality?
- How are risk and materiality related?
- How are risk and materiality integrated into the audit process?
- What is an example of a statement that includes both risk tolerance and materiality?
Based on the group discussion, apply a risk assessment technique to decision making by using the following example:
Assume that you are going to use nonstatistical sampling to evaluate the results of accounts receivable confirmation for the Bovar audit. Results from previous audits have been excellent. Because of the high quality of the controls at Bovar, you have decided to use an acceptable risk of incorrect acceptance of 10%. There are 3,000 accounts receivable with a gross value of $9,601,883. You have decided that an overstatement or understatement of more than $150,000 would be considered material.
Complete the following:
-Calculate the required sample size using the following formula:
Sample size = (book value of population / tolerable misstatement) x assurance factor
- 5% ARIA = 3
- 10% ARIA = 2
- 20% ARIA = 1
Assume that instead of good results from previous audits, Bovar had poor results and the controls in place were questionable.
Discuss the following (300 words)
How would this affect your sample size?
How would you use this information in your sample size determination?
How would you select the accounts for testing using systematic selection?
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