Audit Sampling Flashcards
An auditor sets a tolerable amount of misstatement for an item at $30,000 and performs a sampling for variables test. Based on the preliminary judgment, the population (an account balance) is estimated at a total value of $900,000. However, the client reports this figure at $922,000. What is the impact of this on the audit sample?
Because the difference between the projected balance of the population and the client’s reported figure is less than the auditor’s maximum tolerable amount of misstatement, the test that was performed does provide evidence that the balance is presented fairly.
When is an auditor most likely to use statistical sampling?
when risk levels are high and must be reduced to a more acceptable level
What is meant by the term statistical sampling?
use of mathematical principles to..
plan a test of less than 100% of a population so that the sample will most likely be representative of the population
evaluate the results of the sample and make inferences about the general population being considered
What is sampling risk?
the auditor’s conclusions may be wrong based on the sample that was examined or the sample is not representative of the whole.
What is non-sampling risk?
audit tests do not uncover existing exceptions in the sample
auditor’s failure to recognize exceptions
inappropriate or ineffective audit procedures
What is judgment sampling?
number of items selected for testing and evaluation of the results are based entirely on the auditor’s experience
What are the two major types of statistical sampling?
Attribute sampling
Variable sampling
When is an auditor most likely to use attribute sampling?
often associated with the determination of an error rate which tests efficiency and effectiveness of internal control
how does an increase in the number of items in a population as a whole impact sample size in statistical sampling?
except for small populations it has no impact on sample size
When is an auditor most likely to use sampling for variables?
often associated with obtaining support for a reported figure
How does an expected deviation rate impact the sample size?
there is a direct relationship between the sample size and the deviation rate.
more errors expected = larger sample size
less errors expected = smaller sample size
What is the allowance for sampling risk?
the difference between the sample error and the assumed maximum error rate.
Max error rate - Sample error rate = Sampling risk
How does the maximum tolerable deviation rate impact the sample size?
there is an inverse relationship between the maximum tolerable deviation rate and sample size
smaller tolerable deviation rate = lager sample size
larger tolerable deviation rate = smaller sample size
If an auditor has set the maximum tolerable deviation rate at 6% and takes a sample that shows 2% error but based on sampling methodology determines that the error rate could be as high as 5% what action should the auditor take?
because the maximum actual deviation rate is below the maximum tolerable deviation rate the auditor has gained evidence that this particular control activity is operating effectively and efficiently
If an auditor has set the maximum tolerable deviation rate at 4% and takes a sample that shows 2% error but based on sampling methodology determines that the error rate could be as high as 5% what action should the auditor take?
because the maximum actual deviation rate is above the maximum tolerable deviation rate the auditor has failed to gained evidence that this particular control activity is operating effectively and efficiently
How does the expected amount of misstatement impact the sample size?
there is a direct relationship between the sample size and the expected amount of misstatement.
higher expected amount of misstatement = larger sample size
lower expected amount of misstatement = smaller sample size
How does the maximum tolerable amount of misstatement impact the sample size that is needed?
there is an inverse relationship between the maximum tolerable amount of misstatement and sample size
smaller maximum tolerable amount of misstatement = lager sample size
larger maximum tolerable amount of misstatement = smaller sample size
In sampling, what is meant by the term stratification?
larger items are pulled out of a sample and are tested separately
When is PPS sampling most likely to be used?
PPS places a higher significance on items with large dollar amounts. it is often used when classical variables sampling would require an especially large sample size because of the high degree of variability in the population
How does the acceptable level of sampling risk impact the sample size needed in variable sampling?
there is an inverse relationship between the acceptable level of sampling risk and sample size
smaller acceptable level of sampling risk = lager sample size
larger acceptable level of sampling risk = smaller sample size
What is the purpose of a preliminary sample in variable sampling?
to estimate the standard deviation, which is a measure of variability
more variable = larger sample size
less variability = smaller sample size
How does the acceptable level of sampling risk impact the sample size in attribute sampling?
here is an inverse relationship between the acceptable level of sampling risk and sample size
smaller acceptable level of sampling risk = lager sample size
larger acceptable level of sampling risk = smaller sample size
What is the advantage of using PPS sampling?
larger items have a greater chance of being selected
Variability does not cause a problem in the sampling
particularly effective when an auditor is testing for overstatement
Assume a population of 5 items $250, $200, $50, $250 and $75. The auditor wants to select two invoices and determines that there should be an interval of $400 based on a zero start. Which items will be selected?
item 2 is the 400th dollar
item 5 is the 800th dollar
In performing an audit test based on attribute sampling, what attributes require a larger sample size?
the expected deviation rate is increased
the maximum tolerable deviation rate is decreased
the acceptable level of sampling risk is decreased
In performing an audit test based on variable sampling, what attributes require a larger sample size?
the estimated amount of misstatement is increased
the maximum tolerable amount of misstatement is decreased
the acceptable level of sampling risk is decreased
the estimated variability of the items in the population is increased
What are the two primary benefits of statistical sampling?
the auditor uses mathematical principles to determine the number of items to be selected for the sample
allows the auditor to formulate a more sophisticated evaluation of sample results
Is sampling normally conduced in most audits?
it is performed in virtually every audit due to the quantity of transactions making it appropriate and necessary
What are the two general reasons an auditor could reach the wrong conclusion in a sampling test?
sampling risk
non-sampling risk
