(A5, S1) Audit Sampling Flashcards
What are the two type of sampling?
- Attribute sampling - primarily used for testing internal controls (more of yes or no questions). Used when testing controls as part of the auditor’s evaluation of a company’s internal control.
- Variable sampling - test of details, use in substantive testing of account balances (can be answered with $ amount). Normally used to estimate a numerical measurement of a population.
If the actual deviation rate in the population exceeds the maximum deviation rate based on the sample, control risk will be understated, since the control will be less effective than sample results would indicate.
True or False?
True.
When is an auditor more prone to stratify a population into meaningful groups?
When the population has highly variable recorded amounts.
The sample size in a variables sampling application is affected by the variability in the population (generally represented by the standard deviation), the acceptable level of risk (i.e., the risk of incorrect acceptance), the tolerable misstatement, and the expected misstatement.
True or False?
True.
What does the “upper deviation rate” consist of?
The sample deviation rate plus an allowance for sampling risk.
What factors should an auditor consider when determining the sample size for a test of controls?
- Risk of assessing control risk too low
- Tolerable deviation rate
- Expected deviation rate
- Population size (if large)
What do nonsampling errors relate to?
The improper evaluation of evidence by the auditor and are not dependent on the sampling method used.
What is an advantage of statistical sampling over nonstatistical sampling?
Statistical sampling helps the auditor to measure the sufficiency of the audit evidence because the auditor can quantify the audit risk, thus assisting in limiting it to an acceptable level. Also, provides an objective basis for quantitatively evaluating sample risk. For attribute sampling, it can provide a scientific basis for planning the sample size.
The use of the ratio estimation sampling as compared to other sampling techniques is most effective when:
The calculated audit amounts are approximately proportional to the client’s book amounts.
Deviations from specific control activities at a given rate ordinarily result in misstatements at a lower rate.
True or false.
True.
Deviations from control activities do not necessarily result in misstatements. Therefore, deviations from pertinent control activities at a given rate would ordinarily be expected to result in misstatements at a lower rate.
The risk of incorrect acceptance and risk of incorrect rejection are considered in direct tests of balances (i.e., substantive tests), not in tests of controls.
True or False?
True.
When using classical variables sampling for estimation, an auditor normally evaluates the sampling results by calculating the possible error in either direction. This statistical concept is known as:
Precision
