Approaches of Gathering Evidence and Basic Concepts to Audit Sampling

Question 1

What are the kinds of Selecting Items for Testing

Answer 1

1. Selecting all items
2. Selecting Specific Items
3. Audit Sampling

Question 2

When to do 100% Examination

Answer 2

1. Population consists of small number of large value item
2. There is a significant risk and other means do not provide sufficient appropriate evidence
3. The repetitive nature of calculation or other process performed automatically by an information system makes a 100% examination cost effective

Question 3

Some examples of specific items to be selected

Answer 3

1. High value
2. All items over a certain amount
3. Items to obtain information
4. Items to test process

Question 4

What is Audit Sampling

Answer 4

Involves the application of audit procedures to less than 100% within a population of audit relevance such that all sampling units have a chance of selection

Question 5

Population

Answer 5

Entire set of data which a sample is selected and about which the auditor wishes to draw conclusions

Question 6

Selective Sampling vs Audit Sampling

Answer 6

Selective- Setting a criteria will only be met by SOME but not all units in the population
Audit Sampling- All units shall have the chance of being selected

Question 7

Sampling Risk

Answer 7

Risk that the auditor’s conclusion based on the sample may be different from the conclusion reached if the entire population was subjected to the same audit procedure

Question 8

Sampling Requirements in Test of Controls

Answer 8

Controls to be tested leaves a documentary evidence or audit trail

Question 9

Sampling Requirements in Substantive Testign

Answer 9

The auditor applies test of details (either test of transaction and events or test of balances)

Question 10

When is sampling not applied

Answer 10

1. Inquiry and Observation
2. Analytical Procedures
3. Procedures applied to every item in the populations
4. Test of controls where there is no audit trail

Question 11

Alpha Error or Type I Risk

Answer 11

Risk of incorrect rejection which affects auditors efficiency. It means that the auditor concluded there is a material misstatement but there is actually none

Question 12

Type II Risk or Beta Error

Answer 12

Risk of Incorrect Acceptance which affects auditors effectiveness. It means the auditor concluded there is no material misstatement but there actually is

Question 13

Random Sampling

Answer 13

Every sampling unit has the same probability of being selected

Question 14

Systematic Selection

Answer 14

Every nth item is selected after a random start

Question 15

Haphazard Sampling

Answer 15

Sample is selected without following an organized or structured technique, based on judgement

Question 16

Block Selection

Answer 16

Involves selecting block’s of contiguous items from within the population

Question 17

Nonsampling risk

Answer 17

Risk that the auditor reaches an erroneous conclusion for any reason not related to sampling risk

Question 18

Characteristics of Statistical sampling

Answer 18

1. Random selection of the sample items; and
2. The use of probability theory to evaluate sampling results including measurement of sampling risk

Question 19

Attribute Sampling Plan

Answer 19

Sampling plan used to estimate the rate or frequency of occurrence of a certain characteristic in a population.

Question 20

Steps in Attribute Sampling Plan

Answer 20

1. Determine the objective
2. Determine the attribute and deviation conditions
3. Define the population
4. Determine the sample size
5. Determine the method of selecting the sample
6. Test the sampple
7. Evaluate the sample results
8. Document sampling procedure

Question 21

Steps in Attribute Sampling Plan

Answer 21

1. Determine the objective
2. Determine the attribute and deviation conditions
3. Define the population
4. Determine the sample size
5. Determine the method of selecting the sample
6. Test the sample
7. Evaluate the sample results
8. Document sampling procedure

Question 22

Tolerable Deviation Rate

Answer 22

Rate of deviation from prescribed internal control procedure set by the auditor in respect of which auditor seeks to obtain an appropriate level of assurance that is not exceeded by the actual rate of deviation

Question 23

Expected Population Deviation Rate

Answer 23

Rate of deviation the auditor expects to find in the population prior to testing

Question 24

What to do with properly voided, unused, or inapplicable documents in testing the sample

Answer 24

It can be replaced

Question 25

What to do with missing documents in testing the sample

Answer 25

considered as a deviation since auditor was unable to determine whether the control was appropriately performed

Question 26

Sample Deviation Rate Formula

Answer 26

Number of deviations observed/Sample Size

Question 27

Estimated Maximum Rate of Deviation Formula

Answer 27

SDR + Allowance for Sampling risk

Question 28

If Estimated Maximum Rate of Deviation is greater than Tolerable Deviation Rate

Answer 28

Control Risk will be assessed at maximum

Question 29

When to use estimated maximum rate of deviation

Answer 29

When Sample Deviation Rate is lower than Tolerable Deviation Rate

Question 30

Sequential Sampling

Answer 30

Used when auditor expects zero or very few deviations within a population. After each step performed, auditor will decide whether to continue or stop the sampling

Question 31

Discovery Sampling

Answer 31

If the auditor discovers at least one deviation, no reliance will be placed on internal controls

Question 32

Variable Sampling

Answer 32

Sampling plan used in substantive testing to estimate numerical measurement of a population such as peso value

Question 33

Methods of sample selecting for variable sampling

Answer 33

1. Stratification
2. Value weighted Selection

Question 34

Stratification

Answer 34

Dividing the population into subpopulations. Subpopulation is a group of sampling units which have similar characteristics