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New Mexico State Bovar Company Auditing Principles and Codes of Ethics Memo

New Mexico State Bovar Company Auditing Principles and Codes of Ethics Memo

Question Description

Part 1

In preparation for the Bovar Company’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.

Prepare a 2-page document that discusses the following:

  • Auditing principles
  • Code of conduct

Part 2

To assess Bovar’s liability for the upcoming external audit, discuss the following topics:

Discussion Board:

  • 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?

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
      • 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:
    • 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?

    Part 1: 500–750 words; Part 2: Discussion + 200–300 words


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