Audit - Audit Sample AUD4

Question 1

What is non- sampling risk?

Answer 1

Risk related to human error.

Question 2

What are the two types of Sampling Risk?

Answer 2

1. Type 1 - Efficiency Error

2. Type 2 - Less Effective

Question 3

What is attribute Sampling? and what are two related risk?

Answer 3

Sampling for testing of controls.
Two risk:
1. Assessing RMM too low - leads to ineffective audit.
2. Assessing RMM to high - effective audit, but inefficient.

Question 4

What is statistical Sampling?

Answer 4

For substantive testing.

Use of quantitative measures, formulas are used to determine sample size.

Question 5

What is non-statistical sampling?

Answer 5

Judgement call on sample size. Typically leads to larger sample size and inefficient audit.

Question 6

While using attribute sampling, what 3 factors does auditor consider for sample size?

Answer 6

1. Tolerable deviation rate: rate control can be wrong but still operating effectively. This has inverse relationship on sample size.
2. Expected deviation rate - % of time auditor expects control to be violated. True deviation rate has to be lower than expected.
3. Assessing RMM too low -

Question 7

What is the relationship of tolerable relationship with sample size?

Answer 7

Inverse relationship. Higher tolerable deviation, leads to smaller sample size.

Question 8

What is relationship of expected deviation rate on sample size?

Answer 8

Direct effect. Closer expected dev. rate gets to tolerable rate, the larger sample size the auditor needs.

Question 9

What is impact on assessing RMM too low on sample size?

Answer 9

inverse relationship. Accepting RMM too low leads to auditor being comfortable with large devitions thus smaller sample size.

Question 10

What is maximum deviation rate? AKA “upper precision limit”

Answer 10

= sample dev. rate + “allowance for sampling risk”

Question 11

What is classical variable sampling?

Answer 11

Form of sampling used for substantive testing.

Question 12

What are the two risk of classical variable sampling?

Answer 12

1. Incorrect acceptance of testing - audit ineffective.

2. Incorrect rejection of testing - audit effective, but inefficient.

Question 13

What factors affect classical variable sampling sample size?

Answer 13

1. Tolerable misstatement - inverse.
2. Acceptable risk - inverse.
3. Population Size - direct.
4. Expected misstatement - direct.
5. Std deviation - Direct
6. RMM - Direct.

Question 14

what are the three types of classical variables sampling?

Answer 14

1. Means per unit estimation
2. Difference estimation
3. Ratio estimation

Question 15

What is the definition of misstatement?

Answer 15

Per AICPA:

1. difference btw amts, classification or presentation
2. omission of a FS element, account or item
3. FS disclosure not presented accordance with GAAP
4. Omission of info required to be disclosed.

Question 16

How should misstatements be assessed qualitatively?

Answer 16

1. Ms that affect trends of profitability
2. Ms that change losses to income
3. Ms that affect segment info
4. Ms that affect compliance and legal and contractual requirement