Approaches of Gathering Evidence and Basic Concepts to Audit Sampling Flashcards
What are the kinds of Selecting Items for Testing
- Selecting all items
- Selecting Specific Items
- Audit Sampling
When to do 100% Examination
- Population consists of small number of large value item
- There is a significant risk and other means do not provide sufficient appropriate evidence
- The repetitive nature of calculation or other process performed automatically by an information system makes a 100% examination cost effective
Some examples of specific items to be selected
- High value
- All items over a certain amount
- Items to obtain information
- Items to test process
What is Audit Sampling
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
Population
Entire set of data which a sample is selected and about which the auditor wishes to draw conclusions
Selective Sampling vs Audit Sampling
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
Sampling Risk
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
Sampling Requirements in Test of Controls
Controls to be tested leaves a documentary evidence or audit trail
Sampling Requirements in Substantive Testign
The auditor applies test of details (either test of transaction and events or test of balances)
When is sampling not applied
- Inquiry and Observation
- Analytical Procedures
- Procedures applied to every item in the populations
- Test of controls where there is no audit trail
Alpha Error or Type I Risk
Risk of incorrect rejection which affects auditors efficiency. It means that the auditor concluded there is a material misstatement but there is actually none
Type II Risk or Beta Error
Risk of Incorrect Acceptance which affects auditors effectiveness. It means the auditor concluded there is no material misstatement but there actually is
Random Sampling
Every sampling unit has the same probability of being selected
Systematic Selection
Every nth item is selected after a random start
Haphazard Sampling
Sample is selected without following an organized or structured technique, based on judgement
Block Selection
Involves selecting block’s of contiguous items from within the population
Nonsampling risk
Risk that the auditor reaches an erroneous conclusion for any reason not related to sampling risk
Characteristics of Statistical sampling
- Random selection of the sample items; and
- The use of probability theory to evaluate sampling results including measurement of sampling risk
Attribute Sampling Plan
Sampling plan used to estimate the rate or frequency of occurrence of a certain characteristic in a population.
Steps in Attribute Sampling Plan
- Determine the objective
- Determine the attribute and deviation conditions
- Define the population
- Determine the sample size
- Determine the method of selecting the sample
- Test the sampple
- Evaluate the sample results
- Document sampling procedure
Steps in Attribute Sampling Plan
- Determine the objective
- Determine the attribute and deviation conditions
- Define the population
- Determine the sample size
- Determine the method of selecting the sample
- Test the sample
- Evaluate the sample results
- Document sampling procedure
Tolerable Deviation Rate
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
Expected Population Deviation Rate
Rate of deviation the auditor expects to find in the population prior to testing
What to do with properly voided, unused, or inapplicable documents in testing the sample
It can be replaced
What to do with missing documents in testing the sample
considered as a deviation since auditor was unable to determine whether the control was appropriately performed
Sample Deviation Rate Formula
Number of deviations observed/Sample Size
Estimated Maximum Rate of Deviation Formula
SDR + Allowance for Sampling risk
If Estimated Maximum Rate of Deviation is greater than Tolerable Deviation Rate
Control Risk will be assessed at maximum
When to use estimated maximum rate of deviation
When Sample Deviation Rate is lower than Tolerable Deviation Rate
Sequential Sampling
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
Discovery Sampling
If the auditor discovers at least one deviation, no reliance will be placed on internal controls
Variable Sampling
Sampling plan used in substantive testing to estimate numerical measurement of a population such as peso value
Methods of sample selecting for variable sampling
- Stratification
- Value weighted Selection
Stratification
Dividing the population into subpopulations. Subpopulation is a group of sampling units which have similar characteristics
