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Dear Sir,
Please help me explain these statements, and if possible, please provide any examples to illustrate your point.
Statement 1:. Misstatements established as anomalies can be excluded when projecting sample errors to the population. However, note that the effect of any uncorrected anomalies still needs to be considered.
Projected errors and anomalies are combined together when considering the possible effect of errors on the total class of transactions or account balance. Where the audited entity has corrected specific errors found in the sample, the projected error may be reduced by the amount of these corrections.Statement 2: For tests of details, the total of the projected misstatement and anomalous misstatement is the auditor’s best estimate of misstatement in the population. If the total exceeds tolerable misstatement, the sample does not provide a reasonable basis for conclusions about the population. The closer the total figure is to tolerable misstatement, the more likely it is that actual misstatement in the population could exceed
tolerable misstatement. The auditor must therefore also consider the results of other audit procedures to assist in determining the risk that actual misstatement in the population exceeds tolerable misstatement. The risk may be reduced if additional audit evidence is obtained.Many thanks and regards,
Statement 1: Say errors had bee found when sampling invoices. If these had all been made when the supervisot was on holiday for 2 weels, you can say these were caused by an anomaly – the supervisors being away. If no errors were found the rest of the year, you would conclude that for 50 weeks of the year everything was fine, but you would need to estimate the possible effect of the errors that happened when the supervisot was away.
Statement 2: this is really saying that the greater the errors in the sample, whether anomalous or not, the greater the chance that a material misstatement is present in the financial statements amount.
Don’t worry about all this too much; it’s rather advanced for F8
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