Bangladesh University - MGT 2202 Audit & Taxation Class Test 2

This document presents a solution to a Class Test (MGT 2202) on Audit & Taxation. It covers key aspects of audit planning, including sampling methods like random, systematic, block, haphazard, and stratified sampling. The assignment delves into monetary unit sampling, audit evidence, and documentation. It explores the revenue cycle, account balance auditing, and transaction testing. Furthermore, it examines the expenditure cycle, focusing on accounts payable and the sales and collection cycle. The document also addresses inventory audits, including physical inventory counts and audit procedures. Lastly, it discusses materiality and audit risk, including inherent, control, and detection risks, and their impact on financial statements. The solution is submitted to the Faculty of Business Studies, Bangladesh University of Professionals.

Class Test – 2
Course Name - Audit & Taxation
Course Code - MGT 2202
Submitted to –
Md. Sahid Hossain
Lecturer
Department of Accounting & Information System
Faculty of Business Studies
Bangladesh University of Professionals
Submitted by –
Md Hossain Mahtab
ID: 2024161076
Section: B
Department of Management Studies
Faculty of Business Studies
Bangladesh University of Professionals
Submission Date – 20th September 2021

Chap – 7
Audit planning is described as the strategic process to provide the desired results,
which also define the audit scope inside the organization. The audit plan may also be used to
define the methods for reviewing financial occurrences. To limit the risk of sampling to a
reasonably low level, the auditor must select an adequate sample size. The auditor shall pick
items for the sample to give a possibility of selection for every sampling unit in the population.
• There are 5 sample types: random, systematic, block, hazard and stratified.
• Random sampling is similar to placing everybody's name in a chape. The same
opportunity exists for every segment of the population. Although it is often hard to
perform, this is the recommended method of sampling. A full list must be obtained of all
elements within the population. Random sampling is commonly utilized for computer
produced lists.
• Systematic sampling than random sample is easier to perform. The list of elements is
"counted out" in a systemic sampling It's the same as lining up everybody. All persons
numbered 4 would be utilized when numbering is done.
• It is rather straightforward to perform block sampling, however it may be the worst
approach to utilize. The easily accessible data is utilized for block sampling. This is the
first person in which the surveyor comes.
• Sampling of the haphazard is performed by the geographical division of people into
groups. Clusters are picked randomly, and each element is used in the selected clusters.
• Stratified samples are also divided into groupings known as strata. This time, though, it's
not geographically characteristic. The population may, for example, be divided into men

and women. A random, systematic or convenience sample is obtained from each of these
strata.
Sampling attributes is a statistical method used to assess the features of the specific population
during audit operations. This method is commonly used to assess whether internal controls of a
firm are followed properly or not. The definition of the testing feature and the exception criteria
are an attribute when using audit sampling. This quality may be demonstrated in a control test
Operation of the design-compatible control. The characteristic is the lack of monetary mistake in
a substantial test. An example is the continuous cough from a person due to chain smoking. The
qualities or characteristics of an individual, location or item are specified. Intelligence, charisma
and humor are each a case in point.
Chap – 8
Seven stages for sampling the monetary unit:
1. Find out errors for each item sample .
2. In each item of the sample calculate an error by $1
3. Misstating the percentage of the sample goods per dollar unit, from highest to lowest,
including percentage mispricing.

4. Determine the highest accuracy limit on the sample table characteristics and compute the %
error bound for each mistake (layer).
5. For each layer and overall, calculate the initial upper and lower abnormal limit.
6. The point estimate for exaggeration and understatement should be calculated.
7. Compute the upper and lower mistake limits adjusted.
Audit evidence is the auditor's knowledge to draw conclusions on which their reports are based.
Audit evidence In order to give the appropriate foundation for their judgement on the financial
statement, the auditors must gather sufficient evidence.
The number or amount of audit proof is adequate for audit proof. By looking at the risks of
substantial mistakes and the overall quality of the evidence, we calculate the quantity of audit
evidence that we require. We rely most of the time on evidence which is compelling and not
convincing.
Documentation of audit documents is the record of methods done, evidence gathered, and audit
conclusions. The quality control over an audit is better. In subsequent years, it displays auditors
how they performed the audit. It is suitable for junior auditors as a training tool.
The revenue cycle represents a recurrent set of business activities and related information
processing processes linked to the provision and collection of products and services for
customers.

Chap – 9
The balance of the account is the net amount of all deposits or credits after all
charges or debits have been balanced. Sometimes, owing to outstanding transactions or not
completed checks, account balance might not represent the most accurate depiction of available
cash.
The audit is in general to analyze the possibility of significant mistakes in the accounts.
Inaccuracies in internal controls and incorrect management statements can give rise to Material
misunderstandings.
Audit Objectives for general equilibrium:
i. Livelihood - included amounts exist.
ii. Completeness - The quantity included is existing.
iii. Precision – The contained amounts are indicated in the right amount.
iv. Classification - Classification of the amounts.
v. Cutoff – In the correct period transactions are recorded.
VI. Details tie in — Account balance is consistent with master and ledger file amounts.
vii. Achievable value - Asset at the assessed achievable value is included.
viii. Rights and goals – Assets shall be owned.

Transaction testing usually relates to the evaluation of individual loans and is sometimes
called account testing, sampling, or testing of transaction levels. Transaction testing is one of
the finest methods for discovering real quality of card portfolios and credit management
procedures.
Chap – 10
The expenditure cycle comprises of recurring business and information processing operations
associated with purchases and payments of products and services. The focus is on raw materials
acquisition, finished goods, supply and services.
The expenditure cycle comprises a number of measures for purchase and payment of goods and
services. This includes what is required to be purchased, purchases, items being received and
seller payments.
In the financial statements, accounts due are typically regarded as one of the major risks when
we audit accounts payable and buy. This might be a subjective region that causes mistakes
because of fraud or mistakes because of account payable. Any time there is no adequate and
robust control methods available for expenses and accounts payable, no documented obligations,
expenditure fraud, and duplicate payments might take place.

There are many types of transactions included in the sales and collection cycle, commonly
known as the income-, receivables- and receipts cycle (RRR). The transaction category and
receipt class are the standard journal entries in receivables for debiting accounts.
Usually, the procedure starts whenever a client approaches the firm and files a customer order.
This document is submitted to the sales department and a sales order is issued for credit check.
the sales department receives this document. Please bear in mind that sellers are not doing credit
checks since their position as a seller might impact their preference in taking customer credit
choices. This is known as division of tasks.
Common internal sales cycle controls include numerated sales invoices, authorization of
purchase orders exceeding specified limits and permission to write down debt receivables. The
auditor picks a random sample and reviews the report.

Chap – 11
The inventory must cover the accounts of goods, components and raw materials used
or sold by a firm in its production. Inventory refers to every stock in the individual phases of
manufacturing and is an asset as an accounting word. Retailers and producers alike can continue
to sell or construct products by maintaining their inventory.
An stock audit occurs when either the auditor or you use the analytical approach to verify the
inventory procedures of a company and verify that the financial records and real products count
meet each other. Inventory audits are needed to eliminate excessive inventory investments and
verify that you have a healthy equilibrium. Any type of inventory loss arising from wastage,
pilferage, damages, obsolescence, and dormant resources is important for inventory auditing.
As auditors, we generally audit our stock by examining the presence, completeness, rights and
obligations, and evaluation of numerous audit statements. In the auditing process
Inventory, the most essential component of the stock audit might be the count of physical
inventory. An inventory audit procedure aims at demonstrating the presence, rights, correctness,
and feasibilities of things in the inventory of a firm. In order to check the inventory techniques of
a corporation and to ensure that the financial records match the physical numbers, an auditor
employs many analysis approaches. An inventory monitor is the supervision by an external
auditor of a customer's inventory counting procedure. There are a variety of duties in this
supervision work, including: Verifying that a sample of counts made of customer personnel has
been counted for all inventories.

Chap – 12
Materiality does not just mean quantifiable quantities, but it also has the influence of that
quantity in diverse settings. In the course of the audit planning, the auditor determines the level
of materiality and takes all the financial statements to be audited into consideration. Materiality
is a notion that describes why and how specific problems are significant for a corporation or
enterprise. A substantive problem may have a significant influence on a company's financial,
economic, reputational, legal elements and the systems of internal and external stakeholders.
Example Materiality of the audit:
The current ratio = current liabilities should not go below 1.0. For further information please see:
Currently, the company's current ratio is only a little more than 1.0. A minute mistake of 3.000
dollars might now be substantial for the auditor of the firm.
Audit risk is described as 'the risk that if the financial statements are incorrect, the auditor issues
an improper audit opinion. The risk of audit depends on the hazards of material mistakes and the
danger of detection. The inherent risk, control risk and detection risk are three categories of audit
risks. The risk of a major mistake, which might lead to a material mistake in the financial
statements of a firm before the audit is sometimes referred to as inherent risk and control risk in
combination.