Auditing Principles & Procedures Flashcards

When using attribute sampling in an insurance audit, the auditor is measuring:

Answer: The rate of occurrence of a specific control deviation

Attribute sampling estimates the frequency (rate) at which a control fails to operate as intended.

In statistical sampling for insurance audits, a higher tolerable error rate allows the auditor to:

Answer: Reduce the required sample size

A higher tolerable error rate means the auditor can accept more deviation, requiring fewer items to be tested to reach a conclusion.

An auditor is testing claim payments for proper authorization. The auditor finds 4 deviations in a sample of 100. What is the sample deviation rate?

Answer: 4%

Sample deviation rate = deviations found ÷ sample size = 4 ÷ 100 = 4%.

Substantive testing in an insurance audit is designed to:

Answer: Detect material misstatements in account balances or transactions

Substantive tests provide direct evidence about whether financial statement amounts and disclosures are free from material misstatement.

Which procedure is MOST appropriate for testing the completeness of reported claims liabilities?

Answer: Reviewing subsequent payments and new claims reported after the balance sheet date

Testing subsequent claim payments and late-reported claims helps identify liabilities that existed at year-end but were not recorded.

A 'dual-purpose test' in auditing serves to:

Answer: Test both the operating effectiveness of a control and the related account balance in one procedure

A dual-purpose test gathers evidence about control effectiveness and the accuracy of financial data in a single testing step.

Monetary unit sampling (MUS) in insurance audits is particularly useful because it:

Answer: Automatically selects high-dollar items with greater probability

MUS uses the dollar as the sampling unit, so larger-balance items have a proportionally higher chance of selection, focusing effort where misstatement risk is greatest.