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AUD > Audit 5 - Audit Sampling > Flashcards

Audit 5 - Audit Sampling Flashcards

1
Q

Sample Size

A

Sample Size - Although various factors affect sample size, population size does not siginificantly affect sample size and doubling the size of the population would not cause the sample size to double.

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2
Q

Sample Size

A

Sample Size - The larger the expected deviation rate in the population, the larger the sample size, a direct relationship.

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3
Q

Sample Size

A

Sample Size - The tolerable deviation rate has an inverse relationship with sample size, which increases as the tolerable deviation rate decreases.

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4
Q

Nonsampling Risk

A

Nonsampling Risk - Nonsampling risk is the risk that an auditor will draw an incorrect conclusion from an audit procedure due to a flaw in the procedure or the auditor’s interpretation of results, such as selecting inappropriate audit procedures.

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5
Q

Sampling Risk

A

Sampling Risk - Sampling risk is the risk that there is a flaw with the sample, a nonrepresentative sample, causing the auditor to draw the wrong conclusion.

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6
Q

Sampling Risk

A

Sampling Risk - Sampling risk would cause the auditor to conclude that internal controls are more or less effective than they actually are or concluding that a misstated balance is failry stated or that a fairly stated balance is misstated.

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7
Q

Sample Size -

A

Sample Size - Population size has little to no effect on the sample size and therefore sample size does not increase if population size doubles.

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8
Q

Sample Size -

A

Sample Size - DIRECT RELATIONSHIP - the higher the EXPECTED ERROR RATE, the higher the SS

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9
Q

Sample Size

A

Sample Size - INVERSE RELATIONSHIP - the higher the TOLERABLE ERROR RATE, the SMALLER the SS

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10
Q

Incorrect Rejection -

A

Incorrect Rejection - Rejecting a population because of a projected error that is based on a sample exceeding the tolerable misstatement despite the fact that the error in the population is below the tolerable misstatement.

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11
Q

Incorrect Rejection -

A

Incorrect Rejection - Indicates that the exception or error rate in the sample exceeds the tolerable even though the actual error in the population is at an acceptable level.

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12
Q

Incorrect Acceptance

A

Incorrect Acceptance - When a projected error that is based on a sample is lower than the tolerable misstatement when the actual error in the population is higher.

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13
Q

Incorrect Acceptance

A

Incorrect Acceptance - When an auditor concludes that an error or devaition rate in a population is acceptable based on a sample even though it is not true of the population, it represents a sampling error that results in incorrect acceptance.

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14
Q

Type I Efficiency Error -

A

Type I Efficiency Error - Incorrectly reject account balance based on sample = SAMPLE IS BAD / POPULATION IS GOOD = Risk of underreliance on I/C, RMM (up)

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15
Q

Type II Effectiveness Error -

A

Type II Effectiveness Error - Incorrectly accept account balance based on sample = SAMPLE IS GOOD / POPULATION IS BAD = Risk of overreliance on I/C, RMM (down)

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16
Q

Type I Efficiency Error Example -

A

Type I Efficiency Error Example - When the sample results indicate an intolerable error rate even though the error rate of the population is actually acceptable.

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17
Q

Allowable Risk of Assessing CR -

A

Allowable Risk of Assessing CR - When the auditor’s allowable risk of assessing control risk is very low, the auditor wil perform tests of controls to determine if the control is working effectively.

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18
Q

Allowable Risk of Assessing CR

A

Allowable Risk of Assessing CR - If the auditor’s allowable risk of assessing control risk is too high, the auditor is unlikely to rely on the control and would not test controls.

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19
Q

Allowable Risk of Assessing CR

A

Allowable Risk of Assessing CR - The auditor’s allowable risk of assessing control being too low is a consideration in planning an auditor’s sample for a test of controls.

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20
Q

Allowable Risk of Assessing CR -

A

Allowable Risk of Assessing CR - Materiality is relevent to substantive tests, not tests of controls.

21
Q

Voided Voucher

A

Voided Voucher - In selecting a sample for a test of internal controls, a voided transaction cannot provide evidence as to whether or not the control is effective and the item would be replaced with another. If an item cannot be located or indicates a deviatino, it hsould be kept in the sample and treated as an exception.

22
Q

Voided Voucher

A

Voided Voucher - If a random number in a voucher sample matches a voided voucher, the voucher ordinarily would be replaced by another voucher in the random sample if the voided voucher has been properly voided.

23
Q

Inspecting Purchase Orders

A

Inspecting Purchase Orders - Inspecting purchase orders for proper approval involves determining whether or not the transactions, purchase orders, have a paticular attribute (approval), calling for attribute sampling.

24
Q

Inspecting Purchase Orders -

A

Inspecting Purchase Orders - Tests involving the amount of an expense, the valuation of an account, or account balances would employ variable estimation sampling since the auditor would be trying to evaluate the appropriateness of an amount.

25
Q

Sample Size

A

Sample Size - INVERSE relationship for TOLERABLE DEVIATION RATE / SS - The higher the toleration deviation rate for a population, the more likely that the population will have enough devaitions to be acceptable to the auditor and, as a result, a smaller sample size would be sufficient, indicating an inverse relationship.

26
Q

Sample Size

A

Sample Size - The auditor should consider TOLERABLE RATE OF DEVIATION from the controls being test in determining sample size, because the more errors that are acceptable to the auditor, the less work the auditor will perform to find them.

27
Q

Sample Size

A

Sample Size - DIRECT relationship for EXPECTED DEVIATION RATE / SS - The higher the expected deviation rate in the population, the more likely the population will be unacceptable and the auditor will want to make certain not to make the error or incorrect acceptance. To avoid this, the auditor will seek more precision, requiring a larger sample size, indicating a direct relationship.

28
Q

Sample Size -

A

Sample Size - The higher the EXPECTED DEVIATION, the more concerned the auditor would be about incorrect acceptance and would want to make certain the sample was representative, more likely with a large sample, not a lower one.

29
Q

Sample Size

A

Sample Size - INVERSE relationship for ACCEPTABLE RISK TOO LOW / SS - The higher the acceptable risk of assessing the deviation rate too low, the less precise the auditor needs to be in measuring the deviation rate, indicating a lower sample size and an inverse relationship.

30
Q

Sample Size -

A

Sample Size - The higher the ALLOWABLE RISK OF ASSESSING CONTROL RISK TOO LOW, the less the auditor will be concernred about making such a mistake and the less work that will be done, resulting in a smaller sample size.

31
Q

Error Rate -

A

Error Rate - When performing an attribute sample, it is considered a deviation when the client cannot provide a document that the auditor wishes to examine.

32
Q

Error Rate

A

Error Rate - In a sample population of 100, two vouchers are missing the proper cancellation, while one simply cannot be located. The error rate is 3%.

33
Q

Attribute sampling

A

Attribute sampling is used to determine whether a populatin has a particular attribute. Identifying entries posted to incorrect accounts involves determining whether or not the transactions, entries posted, have a particular attribute, being posted to appropriate accounts, calling for attribute sampling.

34
Q

PPS vs Variable Sampling

A

PPS vs Variable Sampling - PPS sampling offers several advantages over variable sampling. Under PPS, sampling can begin before the population is available and fewer errors will results in a smaller sample size. One disadvantage of PPS in relation to classical variable sampling is that PPS requires special handling for zero and negative balances.

35
Q

PPS vs Variable Sampling -

A

PPS vs Variable Sampling - Both PPS and variable sampling require a preliminary judgment about materiality.

36
Q

PPS vs Variable Sampling -

A

PPS vs Variable Sampling - One disadvantage of PPS in relation to classical variable sampling is that PPS requires special handling for zero and negative balances, while classical variable sampling requires no special design considerations for negative balances.

37
Q

Variable estimation sampling

A

Variable estimation sampling is used to estimate a numerical amount that can be compared to a recorded amount, including estimating payables to compare to year-end recorded amounts.

38
Q

Advantages of PPS

A

Advantages of PPS - Standard deviation is not needed

39
Q

Advantages of PPS -

A

Advantages of PPS - The sample is automatically stratisfied

40
Q

Advantages of PPS

A

Advantages of PPS - A smaller sample will often result when few errors are expected

41
Q

Advantages of PPS

A

Advantages of PPS - A sampling can begin before the entire population is complete.

42
Q

Disadvantages of PPS

A

Disadvantages - Zero and negative balances require special handling

43
Q

Disadvantages of PPS

A

Disadvantages - Large sample sizes result when many errors are expected

44
Q

Disadvantages of PPS

A

Disadvantages - Not useful for detecting understatement

45
Q

<p>Example of PPS - </p>

A

<p>Example - Under PPS sampling, an interval is determined by dividing the total value of the poplation by the sample size. When an item is selected from an internal that has a value lower than the interval amount, any error is measured as a percentage of the items value and that percentage is applied to the interval resulting in a larger error measure.</p>

46
Q

Example of PPS - When the item has a value that is equal to or greater than the interval amount in PPS sampling, any error identified is assumed to be the projected misstatement without adjustment.

A

Example - When the item has a value that is equal to or greater than the interval amount in PPS sampling, any error identified is assumed to be the projected misstatement without adjustment.

47
Q

<p>Example of PPS </p>

A

<p>Example - With an interval of $10,000 and a sample item with a greater recorded amount of $12,000 compared to the audited amount of $11,000, a $1000 error would be considered the projected misstatement.</p>

48
Q

<p>Example of PPS -</p>

A

<p>Example - A risk of incorrect acceptance of 20% with 1 expected misstatement results in a factor of 3.0, which is divided into the tolerrable misstatement of $24,000, resultin in an interval of $8,000. This is divided into the total value of the poplatin to give a sample size equal to $240,000/$8,000, o r30.</p>

AUD (8 decks)

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