Audit Sampling Flashcards
This method of selecting items for testing involve examination of the entire population of items that make up a class of transactions or account balance
100% examination
True or false: The 100% examination method is unlikely for test details, but likely for test of controls.
False.
Other way around
The following are instances when 100% examination may be appropriate, except:
a. Population constitutes a small number of large value items
b. Repetitive nature of a calculation or other process performed manually makes a 100% examination cost effective
c. There is a significant risk and other means do not provide sufficient appropriate evidence
d. None of the choices
b.
The repetitive nature of a calculation or other process performed AUTOMATICALLY BY AN INFORMATION SYSTEM makes a 100% examination cost effective
Relevant factors for selecting specific items are:
- Auditor’s understanding of the entity;
- Assessed risks of material misstatement; and
- Characteristics of the population being tested
The judgmental selection of specific items is subject to __________ risk
Non-sampling
Entire set of data from which a sample is selected and about which the auditor wishes to draw conclusions
Population
The following are specific items that may be included when selecting specific items to examine, except:
a. All items over a certain amount
b. Items to test process or procedure
c. High-value items
d. Population of small number of large value items
d.
Choice “d” is for 100% examination
Refers to individual item constituting a population
Sampling unit
Involves the application of audit procedures to less than 100% of items within a population of audit relevance such that all sampling units have a chance of selection
Audit sampling
What is the objective of the auditor when using audit sampling?
- To design and select audit sample;
- Perform audit procedures on the sample items; and
- Evaluate the results from the sample in a manner that will provide an appropriate basis for the auditor to draw conclusions about the population
The following do not involve sampling, except for one:
a. Test of controls (application documented)
b. Test of controls (application not documented)
c. Untested balances
d. Inquiry and observation
a.
Mathematical complement of sampling risk is called ______________________
Confidence levels
If controls are more effective than they actually are, _______________________ is affected, thus leading to an inappropriate conclusion
Audit effectiveness
Risk that the auditor’s conclusion based on a sample may be different from the conclusion reached of the entire population were subjected to the same audit procedure
Sampling risk
Which of the following is the auditor most concerned with: audit effectiveness or audit efficiency?
Audit effectiveness
If controls are less effective than they actually are, __________________ is affected, thus leading to more work to be done because of incorrect initial conclusions.
Audit efficiency
If a material misstatement does not exist, but in reality, such exists, _______________ is affected.
Audit effectiveness
If material misstatement exists when in fact it does not, _________________ is affected.
Audit efficiency
How can an auditor control sampling risk?
- Increase sample size; and
- Use an appropriate sample selection method
Every nth item is selected after a random start. A random starting point gives all items in the population an equal opportunity to be selected.
Systematic selection
The auditor selects the sample by matching random numbers with the population numbering system such as document number.
Random-number sampling
Under this method, every sampling unit has the same probability of being selected.
Random-number sampling
Under this method, items in the population need not be consecutively numbered
Systematic selection
What is the concern of the auditor when using systematic selection?
That sampling units within the population are not structured in a way that sampling interval corresponds with a particular pattern in the population
Why is haphazard sampling not used in statistical sampling?
Because the auditor cannot measure the probability of an item being selected.
Involves selection of blocks of contiguous items from within the population
Block selection
No organized or structured technique is followed under this sampling method
Haphazard sampling
Why is block selection the least desirable sample selection method?
- Samples drawn may not be representative of the entire population.
- Most population are structured such that items in sequence can be expected to have similar characteristics to each other, but different characteristics from items elsewhere in the population.
Examples of non-sampling risk are the following, except:
a. Misinterpretation of results of audit tests
b. Inappropriate selection of audit procedures
c. Failure to recognize misstatements in sample tested
d. Use of haphazard sampling
d.
Examples of non-sampling risk are the following, except:
a. Misinterpretation of results of audit tests
b. Inappropriate selection of audit procedures
c. Failure to recognize misstatements in sample tested
d. None of the choices
d.
Arises from factors that cause the auditor to reach an erroneous conclusion that is not related to sample size.
Non-sampling risk
Risk that auditor does not recognize misstatements or deviations included in the sample for what they are.
Non-sampling risk
How can non-sampling risk be minimized?
a. Lack of planning
b. Adherence to firm’s quality control standards
c. No direction, supervision, and review by audit team
d. Choices a and c
b.
Possibility that the auditor’s finding based on a sample differs from the conclusion reached if the entire population were subjected to the same procedure is what risk?
Sampling risk
Error that occurs as a result of a single occurrence that has occurred only on certain occasions and hence not reflective of errors in the population.
Anomalous error
Audit sampling for substantive tests is appropriate when:
a. Tests of details are performed
b. Analytical procedures are performed
c. Auditor wants to eliminate sampling risks
d. Population contains small number of large value items
a
Audit sampling for test of control is generally appropriate when:
a. Examining specific high value items in the population
b. Control leaves no evidence of performance
c. 100% of the transaction is tested
d. Control leaves evidence of performance
d.
If an auditor desires a greater level of assurance in auditing a balance, the acceptable risk of incorrect acceptance would be:
Reduced
When performing substantive tests, which of the two risks of error (alpha & beta) would be of greatest concern by the auditor?
Beta (aka Type II error or error that affects EFFECTIVENESS)
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Hint:
- A comes first before B (and I comes first before II), so Alpha = Type I, and Beta = Type II
- Alpha leads to “ADDITIONAL work”, and both start with “A”; Beta leads to “inappropriate CONCLUSION/opinion”, and the start of letters of Beta and Conclusion are near to each other in the alphabet.
In determining whether a sample is truly representative of the population or not, what would an auditor do?
a. Audit entire population
b. Conduct multiple samples of the same population
c. Never use sampling because it is expensive
d. Use systematic sample selection
a.
Sampling used for tests of details of balances provides results in terms of:
a. Pesos
b. Deviation rates
c. Percentages
d. Expectation rates
a.
If an auditor intends to use statistical sampling and is concerned about the mathematical errors on a client’s sales invoice, the sampling technique that the auditor will use will be:
a. Sampling for variables
b. Sampling for attributes
c. Random sampling with replacement
d. Any of the choices above, based on auditor’s judgment.
b.
When auditors want to do a statistical analysis on a sample, an acceptable selection method is
a. Haphazard selection
b. Systematic sample selection
c. Block sample selection
d. None of the choices
b.
The following are principal methods of sampling selection, except:
a. Systematic
b. Haphazard
c. Statistical
d. Random number
c.
Process which requires calculation of an interval and then selects the items based on size of intervals.
Systematic selection
Hint: “Intervals”
