14.4 Flashcards
Which of the following sampling methods is used to estimate a numerical measurement of a population, such as a dollar value?
Variables sampling.
Variables sampling samples dollar amounts or other quantities. The purpose of variables sampling is to estimate a measure of a population.
An auditor established a $60,000 tolerable misstatement for an asset with an account balance of $1,000,000. The auditor selected a sample of every twentieth item from the population that represented the asset account balance and discovered overstatements of $3,700 and understatements of $200. Under these circumstances, the auditor most likely would conclude that
There is an unacceptably high risk that the actual misstatements in the population exceed the tolerable misstatement because the total projected misstatement is more than the tolerable misstatement.
By taking every twentieth item, the auditor chose a sample containing 5% (1 ÷ 20) of the items in the population. If the sample contains $3,700 of overstatements and $200 of understatements, the projected overstatements and understatements are $74,000 and $4,000, respectively, a projected misstatement of $78,000. Furthermore, sampling risk should be considered. The allowance for sampling risk calculated for a specified level of confidence is an interval around the sample result that is expected to contain the true amount of misstatement. The upper limit of this interval equals $78,000 plus the calculated allowance. Accordingly, given that projected misstatement exceeds tolerable misstatement, the auditor most likely will conclude that the risk that actual misstatement exceeds tolerable misstatement is unacceptably high.
In attribute sampling, a 10% change in which of the following factors normally will have the least effect on the size of a statistical sample?
Population size.
A change in the size of the population has a very small effect on the required sample size when the population is large. As the population increases, the sample size also increases but at a decreasing rate.
The risk of underreliance is that the sample selected to test controls
Does not support the auditor’s planned reliance on controls when the true operating effectiveness of controls justifies such an assessment.
The risk of underreliance is one aspect of sampling risk. It is the risk of the erroneous conclusion based on a sample that controls are less effective than they actually are. This kind of error most likely diminishes the efficiency, but not the effectiveness, of the audit. Underreliance ordinarily leads to devoting greater and possibly unnecessary effort to substantive procedures.
Which of the following is a true statement about statistical sampling in tests of controls?
The relationship between the sample size and the tolerable population deviation rate is inverse.
The tolerable population deviation rate is set by the auditor. The auditor seeks to obtain appropriate assurance that this rate is not exceeded by the actual rate. The sample size and the tolerable population deviation rate have an inverse relationship because the degree of assurance to be provided by the sample is higher (lower) when the tolerable population deviation rate is lower (higher).
The possibility of the auditor’s failure to recognize a misstatement in an amount or a deviation from a prescribed control arises from
Nonsampling risk.
Nonsampling risk is the risk that the auditor may draw an erroneous conclusion for any reason not related to sampling risk. Examples include the use of inappropriate audit procedures or misinterpretation of audit evidence and failure to recognize a misstatement or deviation. Nonsampling risk may be reduced to an acceptable level through such factors as adequate planning and proper conduct of a firm’s audit practice in accordance with the quality control standards (AU-C 530). Sampling risk results from the use of statistical sampling.
If the size of the sample to be used in a particular test of attributes has not been determined by using statistical concepts, but the sample has been chosen in accordance with random selection procedures,
The auditor may or may not achieve desired precision at the desired level of confidence.
The determination of sample size for a test of attributes is a function of (1) the allowable risk of overreliance, (2) the tolerable deviation rate, (3) the expected population deviation rate, and (4) the size of the population. When the auditor does not use these criteria to determine sample size, (s)he risks not meeting the audit objectives.
The degree of audit risk always present in an audit engagement is referred to as a combination of nonsampling and sampling risk. Which of the following is an example of nonsampling risk?
The auditor selecting inappropriate auditing procedures.
Sampling risk is the risk that the auditor’s conclusion based on a sample may differ from the conclusion when the same procedure is applied to the entire population. Two types of erroneous conclusions may be drawn: (1) controls are more effective than they actually are (overreliance), or a material misstatement does not exist when in fact it does exist (incorrect acceptance), or (2) controls are less effective than they actually are (underreliance), or a material misstatement exists when in fact it does not exist (incorrect rejection). Nonsampling risk is the risk of an erroneous conclusion caused by a factor not related to sampling risk. For example, the auditor may apply inappropriate procedures or misinterpret audit evidence and not recognize misstatements or control deviations.
AU-C 530, Audit Sampling, identifies two general approaches to audit sampling. They are
Statistical and nonstatistical.
Statistical sampling has two characteristics: (1) random selection of sample items and (2) use of an appropriate statistical method to evaluate results, including measurement of sampling risk. A sampling method that does not have (1) and (2) is nonstatistical (AU-C 530).
Which of the following characteristics most likely would be an advantage of using classical variables sampling rather than monetary-unit (MUS) sampling?
The selection of negative balances requires no special design considerations.
When an auditor uses MUS sampling, items with zero or negative balances have no chance of selection. Thus, to select negative balances, the auditor is required to consider special designs that are not necessary with classical variables sampling.
The size of a sample designed for dual-purpose testing should be
The larger of the samples that would otherwise have been designed for the two separate purposes.
Dual-purpose testing is the use of a sample for both tests of controls and substantive testing. It is customarily used when the auditor believes that the rate of deviations from the prescribed control in the population is acceptable. Thus, a related substantive procedure might be planned at a level of risk that anticipates a low assessed risk of material misstatement. The sample size should be the larger of the samples that would otherwise have been designed for the two separate purposes.
Which of the following statements is true concerning monetary-unit sampling (MUS), also known as probability-proportional-to-size sampling?
The auditor controls the risk of incorrect acceptance by specifying that risk level for the sampling plan.
MUS is one technique whereby the auditor can measure and control the risks associated with observing less than 100% of the population. The auditor can quantify and measure the risk of accepting a client’s recorded amount as fair when it is materially misstated.
In which of the following situations is attribute sampling likely to be used?
Determining the estimated number of occurrences of improperly authorized cash disbursements.
The auditor uses attribute sampling to test the effectiveness of control. This sampling method allows the auditor to determine the occurrence rate of deviations and its relation to the tolerable rate of deviation. A control, such as the proper approval and authorization of cash disbursements, can be tested for effectiveness using attribute sampling.
A number of factors influence the sample size for a substantive test of details of an account balance. All other factors being equal, which of the following would lead to a larger sample size?
Smaller measure of tolerable misstatement.
Holding the risk of incorrect acceptance constant, a reduction in acceptable tolerable misstatement would require the auditor to select a larger sample. The larger sample would reduce the allowance for sampling risk.
Which of the following courses of action would an auditor most likely follow in planning a sample of cash disbursements if the auditor is aware of several unusually large cash disbursements?
Stratify the cash disbursements population so that the unusually large disbursements are selected.
Stratifying a population means dividing it into subpopulations, thereby permitting application of different sampling techniques to each subpopulation or stratum. Stratifying allows for greater emphasis on larger or more important items.
