AUD 5 - Audit Sampling Flashcards
What is defined as the risk that the sample is not representative of the population and that the auditor’s conclusion will be different from the conclusion had the auditor examined 100% of the population?
Sampling risk
What type of sampling is primarily used for testing internal controls?
Attribute sampling
What type of sampling is typically used in substantive testing of account balances?
Variables sampling
What is defined as the uncertainty inherent in applying audit procedures?
Audit risk
Audit risk includes both uncertainties due to ______ and uncertainties due to factors other than _______.
Sampling
The auditor is concerned with what two aspects of sampling risk in substantive testing?
- Risk of incorrect acceptance
- Risk of incorrect rejection
What is the risk of incorrect acceptance?
Risk that the sample supports the conclusion that the recorded account balance is not MM when in fact is is MM
What is the risk of incorrect rejection?
Risk that the sample supports the conclusion that the recorded account balance is MM when in fact it is not MM
What is the risk of incorrect acceptance also known as?
Beta risk
What is the risk of incorrect rejection also known as?
Alpha risk
The auditor is concerned with what two aspects of sampling risk in tests of controls?
- Risk of assessing control risk too low
- Risk of assessing control too high
Efficiency is lost with ______ risk.
Alpha
Effectiveness is lost with _____ risk.
Beta
Give an example of nonsampling risk.
- Use inappropriate audit evidence
- Improperly evaluating the results
True or false.
Attribute sampling generally deals with yes/no questions.
True
EXPLANATION: For example, “Are time cards properly authorized (i.e. to assure recorded hours were worked)?”
Would the sample size increase or decrease if the risk of assessing control risk too low increased to 10%?
Smaller sample size
Would the sample size increase or decrease if the tolerable deviation rate increased to 7%?
Smaller sample size
Would the sample size increase or decrease if the expected deviation rate decreased to 0%?
Smaller sample size
An auditor who uses statistical sampling for testing IC should reduce the planned reliance on a prescribed control when the sample rate of deviation plus the allowance for sampling risk exceeds what?
Exceeds the tolerable rate
What is defined as the maximum monetary misstatement in the related account balance or class of transactions that the auditor is willing to accept?
Tolerable misstatement
When is stratification commonly used?
When a population has highly variable recorded amounts
What does PPS sampling stand for?
Probability proportional to size sampling
What is considered a hybrid method because it uses attribute sampling theory to express a conclusion in dollar amounts rather than as a rate or occurrence?
PPS Sampling (probability proportional to size sampling)
PPS Sample Size Determination. How do you calculate the sampling interval?
= tolerable misstatement / reliability factor
EXPLANATION: Tolerable misstatement is the max dollar error that may exist in the account w/o causing the f/s to be MM. The reliability factor is from a table.
