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A5 Outline Cards > A5 Sampling > Flashcards

A5 Sampling Flashcards

0
Q

Occurs when an auditor tests less than 100% of the population and draws conclusion about the entire population based on the sample.

A

Audit Sampling

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1
Q

The uncertainty inherent in applying audit procedures, which includes both uncertainties due to sampling and uncertainties due to other factors beyond sampling.

A

Audit Risk

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2
Q

The risk that the sample is not representative of the population, and therefore the auditor’s conclusion will be incorrect.

A

Sampling Risk

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3
Q

Can be either statistical or non-statistical. (characteristics?)

A

Sampling

a. Either method is equally acceptable.
b. Statistical sampling methods rely on mathematical concepts.
c. Both methods involve the use of judgment

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4
Q

Used to estimate a rate of occurrence (exception) of a specific characteristic (attribute).

A

Attribute Sampling

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5
Q

Used in Tests of Controls

A

Attribute Sampling

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6
Q

Sampling risk associated with attribute sampling includes:

A
  1. The risk of assessing control risk too low

2. The risk of assessing control risk too high

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7
Q

(1) The sample indicates the control is working when, in fact, it is not.
(2) The auditor will erroneously rely on the control.
(3) . This is an EFFECTIVENESS problem.

A

Risk of Assessing Control Risk too Low

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8
Q

(1) The sample indicates the control is not working when in fact, it is working
(2) The auditor will erroneously extend audit work.
(3) This is an EFFICIENCY problem - The auditor will do more work than is actually necessary.

A

The Risk of Assessing Control Risk too High

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9
Q

Used to estimate a numerical quantity (used in substantive testing).

A

Variables sampling

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10
Q

Sampling risk associated with Variables Sampling includes:

A
  1. Risk of incorrect acceptance

2. Risk of incorrect rejection

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11
Q

(1) The sample indicates that the balance is fairly stated when, in fact, it is not.
(2) The auditor will erroneously fail to modify their opinion.
(3) This is an EFFECTIVENESS problem

A

Risk of Incorrect Acceptance

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12
Q

(1) The sample indicates the balance is not fairly stated when, in fact, it is fairly stated.
(2) Auditor may erroneously modify his or her opinion.
(3) This is an EFFICIENCY problem - The auditor will do more work than is necessary.

A

Risk of Incorrect Rejection

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13
Q

The same sample may be used to perform both test of controls and test of details. This is called:

A

Dual Purpose Sample

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14
Q

__________ aspects of deviations and errors should be considered (give an example):

A

Qualitative aspects - Ex. Fraud is of greater concern than honest errors.

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15
Q

Error rate in the sample.

A

Deviation Rate

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16
Q

The maximum rate of a error an auditor can accept.

A

Tolerable Deviation Rate

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17
Q

The auditors estimated error rate (before sampling).

A

Expected Deviation Rate

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18
Q

The high end of the range for the auditor’s estimate of the error rate (based on results of testing the sample).

A

Upper Deviation Rate

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19
Q

Adjusts the sample error rate to get to the upper deviation rate.

A

Allowance for Sampling Risk

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20
Q

Sample Deviation Rate + Allowance for Sampling Risk = ?

A

Upper Deviation Rate

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21
Q

An auditor draw conclusions (attribute sampling) by:

A

Comparing the Tolerable Deviation Rate to the Upper Deviation Rate.

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22
Q

Upper Deviation < / = to the Tolerable Deviation = ?

A

Rely on Control

23
Q

Upper Deviation Rate is > Tolerable Deviation Rate = ?

A

DO NOT rely on control

24
Q

The auditors conclusions about the control will determine:

A

The nature, extent, and timing of substantive procedures to be preformed.

25
Q

Types of attribute sampling methods that may be used when few or no deviations may be accepted.

A

(a) Discovery Sampling - testing area of audit that is of such importance ZERO population errors may be accepted.
(b) Sequential Sampling (stop-or-go sampling) - Each step of the audit determines the next step.

26
Q

The maximum monetary misstatement in an account balance or class of transactions that the auditor is willing to accept.

A

Tolerable Mistatement

27
Q

The auditor’s estimate of misstatement (before sampling).

A

Expected Mistatement

28
Q

The auditor’s estimated misstatement, based on the sample.

A

Projected Mistatement

29
Q

What are the factors that increase/decrease sample size in substantive testing?

A

a. Expected Misstatement - Direct Relationship
b. Population Variability (standard deviation) - Direct Relationship
c. Assessed Level of Risk - Direct Relationship
d. Tolerable Misstatement - Inverse Relationship
e. Acceptable of Risk - Inverse Relationship

30
Q

The auditor’s conclusions about the account balance (substantive testing) are based on:

A

Whether the recorded book value falls within the range defined by the point estimate +- an allowance for sampling risk.

31
Q

What are the three commonly used classical variables sampling plans?

A
  1. Mean-Per-Unit (MPU)
  2. Ratio Estimation
  3. Difference Estimation
32
Q

A hybrid sampling method that uses attribute sampling theory to express a conclusion in dollar amounts instead of as a rate of occurrence.

A

Probability-Proportionate-to-Size (PPS) Sampling (Substantive Testing)

33
Q

Advantages of Probability-Proportionate-to-Size (PPS) Sampling:

A

a. PPS automatically emphasizes larger more valuable items by stratifying the sample. The chance of an item being selected is proportionate to its dollar amount.
b. If no errors are expected PPS sampling generally requires a smaller sample than other methods.

34
Q

Disadvantage of Probability-Proportionate-to-Size Sampling:

A

Zero Balances, Negative Balances, and Understated Balances generally require special design considerations.

35
Q

Correspond to the risk of incorrect acceptance and are generally obtained from a table.

A

Reliability Factor (PPS Sampling)

36
Q

How is the sampling interval (PPS Sampling) determined?

A

Tolerable Misstatement / Reliability Factor = Sampling Interval

37
Q

How is sample size determined (PPS Sampling)?

A

Recorded Amount of the Population / Sampling Interval = Sample Size

38
Q

The maximum dollar error that may exist in the account without causing the financial statements to be materially misstated.

A

Tolerable Misstatement

39
Q

Selected by diving the total numbers of dollars in the population (book value) into uniform groups of dollars or intervals.

A

PPS Sample

40
Q

Applied to the recorded balance to obtain a “point estimate” of the true balance:

A

Projected Misstatement

41
Q

What are the methods an auditor uses to project misstatements found in the sample to the population?

A
  1. Mean-Per-Unit Estimation
  2. Ratio Estimation
  3. Difference Estimation
42
Q

An auditor evaluates the sample results for substantive testing by:

A

The auditor projects the misstatements found in the sample to the population using on of several methods (MPU, ratio estimation, difference estimation). The projected misstatement is then applied to the recorded balance to obtain a “point estimate” of the true balance. The auditor must the add an allowance for sampling risk (sometimes called a “precision interval” to the point estimate.

43
Q

How do you calculate ratio estimation:

A

(Audited Sample Value / Book Value of Sample) * (Total BV of Sample) = Ratio Estimation Point Estimate

44
Q

Type of variables sampling technique that is highly efficient when the calculated audit amounts are approximately proportional to book values.

A

Ratio Estimation

45
Q

Type of variables sampling technique (plan) that is used when the average differences between the audited (correct) values of items and their book values are not proportional.

A

Difference Estimation

46
Q

How is Difference Estimation Calculated?

A

[(BV - Audited Value) / (Sample Size)] * (Sampling Unit)

47
Q

The auditor should consider both the qualitative and the quantitative aspects of deviations in tests of controls. Qualitative aspects might include:

A

Whether deviations are indicative of an error or fraud.

48
Q

May exist even though the auditor has not identified misstatements during the audit.

A

Significant deficiencies and material weaknesses

49
Q

Include senior management fraud, restatement of previous financial statements to correct a material error, identification by the auditor of a material misstatement that the entity’s controls would not have detected, and ineffective oversight by those charged with governance.

A

Indicator of Material Weaknesses

50
Q

Previously communicated significant deficiencies and material weaknesses that have not been corrected should be: (nonissuers IC matters noted during an audit)

A

Communicated again, in writing during the current audit by referring to the previously written communication and the date of that communication.

51
Q

Stratification example: assume 1,000 items are stratified into two groups: the 100 largest items will all be examined individually, but sampling techniques will be applied to the remaining 900 items. In this case the population size for the sampling population would be:

A

900 not 1,000

52
Q

When ______________ is used, each group is treated as a separate population.

A

Stratification

53
Q

Type of classical variables sampling plan that is very sensitive to the variability of the population, and for that reason auditors normally stratify the population into relatively similar groups.

A

Mean-Per Unit Estimation

54
Q

Types of variables sampling plans that usually require smaller sample sizes than the MPU method, however they are only effective when the auditor expects a large number of over- and understatements.

A

Ratio and Difference Estimation

55
Q

The allowance for sampling risk is sometimes referred to as the:

A

“Precision interval”

A5 Outline Cards (3 decks)

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