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Audit > Audit Sampling > Flashcards

Audit Sampling Flashcards

1
Q

What is Audit Sampling?

A

Taking part of a population- subjecting it to audit procedures- projecting results to a population

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2
Q

What are the characteristics of Statistical Sampling?

A

Provides a scientific basis of determining sample size.

Helps evaluate evidence obtained

Helps evaluate results and quantify Sampling Risk

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3
Q

What are the characteristics of Non-Statistical Sampling?

A

Based on auditor’s judgment.

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4
Q

What are the characteristics Test of details?

A

Not required to compute sample standard deviation.

Projects sample “projected misstatement” to the population.

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5
Q

What type of sampling are Control Tests?

A

Attribute Sampling

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6
Q

What is Sampling Risk?

A

Risk that your sample isn’t representative of population (i.e. erroneous conclusion based on sample data)

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7
Q

What is the risk of assessing Control Risk too high?

A

A risk of Control Testing - Auditor works to make Control Risk lower

More substantive tests - Sample overstates Control Risk- Leads to an under-reliance on internal control- over-testing- and overall audit inefficiency

Audit ends up being effective (correct result)- but you do more work

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8
Q

What are the risks if the auditor concludes controls are operating effectively based on the sample and Control Risk is set too low?

A

Leads to higher Detection Risk - Fewer substantive tests

Sample understates Control Risk

This error leads to over-reliance on internal control- under-testing- and overall audit ineffectiveness.

Does NOT necessarily mean that the Financial Statements are materially misstated - it does mean that if there is one- you are less likely to find it

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9
Q

What is the risk of Incorrect Acceptance?

A

A risk of Substantive Testing - Auditor accepts a balance as fairly stated- when in fact it is not fairly stated

Hurts audit effectiveness

Wrong conclusion reached

Efficient- but not effective

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10
Q

What is the risk of Incorrect Rejection?

A

A risk of Substantive Testing - Auditor rejects balance as fairly stated when in fact it is fairly stated

Hurts audit efficiency

Wrong recommendations given

Effective- but not efficient

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11
Q

What is Non-Sampling Risk?

A

Risk of auditor missing an error

Failure to recognize a misstatement or deviation.

Also called exception- error or deviation.

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12
Q

How does Sampling Risk compare to Non-Sampling Risk?

A

Sampling Risk deals with the chance that your audit sample is flawed

Non-Sampling risk deals with the chance that your human decisions/conclusions are flawed

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13
Q

What is Attribute Sampling?

A

Looking at Control Procedures - Were invoices approved when paid?

Errors are stated in terms of %- not dollar amounts

For example- 5 invoices out of 100 were not properly paid. Error rate is 5%

Hint: If you see Error Rate on the Exam- they are referring to Attribute Sampling.

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14
Q

How do you determine if Control Procedures are operating properly or not operating properly?

A

Control Procedures are either operating properly or they are not operating properly - based on Error Rate and the tolerance you have for errors

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15
Q

What is the Tolerable Deviation rate?

A

Deviation rate in population you are willing to accept/tolerate

Inverse relationship to Sample Size

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16
Q

What is the Expected Population Deviation Rate?

A

What Deviation rate are you expecting?

Direct relationship to Sample Size

17
Q

What is the basic premise of Attribute Sampling?

A

Attribute in the sample gives information about the entire audit population

Used to estimate Internal Control error rate

18
Q

For what is the Expected Population Deviation Rate used?

A

Used to determine initial level of Control Risk

19
Q

What is the Allowable Risk of Over-reliance?

A

Risk of Assessing Control Risk too low

Gives you the Sampling Risk

20
Q

When is Attribute sampling used?

A

Attribute sampling is only useful when there is documented evidence (an audit trail) to test

Use when the existence of an error needs to be verified or debunked

21
Q

What is Classic Variable Sampling?

A

Testing for a dollar amount

Value in sample gives information about value in entire population.

22
Q

What functions are used in conjunction with Classic Variable Sampling?

A

Mean Per Unit = Sample Average x Number in Population

Stratification - Decreases effect of variance in population and reduces sample size

23
Q

What are the characteristics of Probability Proportionate to Size (PPS) sampling?

A

A form of Variable Sampling

Does NOT use Standard Deviation

Auditor focuses on a dollar amount

Larger or more valuable items get picked more often as part of the sample

24
Q

What is Projected Misstatement?

A

Misstatement found in sample - have to project it to remainder of population

25
Q

How does Probability Proportionate to Size (PPS) sampling compare to Classic Variables sampling?

A

PPS:

Easier to use- Results in a stratified (homogenous) sample- Results in a smaller sample size to audit- Easy to design

Classic Variables Sampling:

Easy to expand sample size- Selecting zero and negative balances easy

26
Q

What factors affect sample size?

A

Allowable risk of over-reliance - Inverse

Tolerable Deviation rate - Inverse

Expected population Deviation rate - Direct

Population size does NOT affect the sample size -

27
Q

What is the formula for Audit Sampling?

A

SER + ASR < TER

SDR = Sample Deviation Rate

ASR = Allowance for Sampling Risk

TDR = Tolerable Deviation Rate

28
Q

What is Allowance for Sampling Risk?

A

Includes misstatements in either direction..

29
Q

What is the Tolerable Deviation Rate?

A

The amount of deviation rate that you can accept - If population deviation rate is less than TDR- then accept the Control as effective

If population error rate is more than TDR- do more testing to get SDR lower or conclude control isn’t effective. Do more substantive testing

30
Q

What are the steps to develop a sampling plan?

A

Determine Test Objective - for example- have sales shipments been billed?

Define Population and Deviation - take a sample of shipping document- trace forward to see if billed

Determine Sample Size based on tolerable rate for error- risk of assessing Control Risk too low- and expected population error rate.

Select Sampling Technique

31
Q

After a Sampling Plan is developed- what are the steps in sampling?

A

Perform the Sampling Plan

Evaluate Results

Document Results

32
Q

What is Systematic Sampling?

A

Every certain # of a population is selected

Population needs to be randomly ordered

Primary advantage is that population doesn’t require pre-numbering

33
Q

What is Sequential Sampling?

A

Also called Stop or Go sampling

Each audit step determines the next step

34
Q

What is Discovery Sampling?

A

Audit is testing an area that is so crucial that zero population errors can be tolerated

Any phony employees on payroll?

35
Q

How does Block Sampling compare to other sampling methods?

A

Easy to implement- but is the worst method of sampling.

36
Q

What is the formula for sample size?

A

Recorded amount of population / sampling interval

37
Q

What is the formula for sampling interval?

A

Tolerable misstatement / confidence factor

Audit (9 decks)

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