Audit Sampling 2 Flashcards
For what is the Expected Population Deviation (error) Rate used?
Used to determine initial level of Control Risk
What is the Allowable Risk of Over-reliance?
Risk of Assessing Control Risk too lowGives you the Sampling Risk
When is Attribute sampling used?
Attribute sampling is only useful when there is documented evidence (an audit trail) to testUse when the existence of an error needs to be verified or debunked
What is Classic Variable Sampling?
Testing for a dollar amountValue in sample gives information about value in entire population.
What functions are used in conjunction with Classic Variable Sampling?
Mean Per Unit = Sample Average x Number in PopulationStratification - Decreases effect of variance in population and reduces sample size
What are the characteristics of Probability Proportionate to Size (PPS) sampling?
A form of Variable SamplingDoes NOT use Standard DeviationAuditor focuses on a dollar amountLarger or more valuable items get picked more often as part of the sample
What is Projected Misstatement?
Misstatement found in sample - have to project it to remainder of population
How does Probability Proportionate to Size (PPS) sampling compare to Classic Variables sampling?
PPS:Easier to use- Results in a stratified (homogenous) sample- Results in a smaller sample size to audit- Easy to designClassic Variables Sampling:Easy to expand sample size- Selecting zero and negative balances easy
What factors affect sample size?
Tolerable rate for error - Inverse relationship with sample sizeRisk of assessing Control Risk too low - Inverse relationship with sample sizeExpected population error rate - Direct relationship with sample sizePopulation size does NOT affect the sample size - as population is larger- sample size doesn’t grow.
What is the formula for Audit Sampling?
SER + ASR < TERSER = Sample Error RateASR = Allowance for Sampling RiskTER = Tolerable Error Rate
What is Allowance for Sampling Risk?
The amount that you add to the Sampling Error Rate to get some cushion for your sample.As high as you think the population error rate could go based on experience.
What is the Tolerable Error Rate?
The amount of error rate that you can accept - If population error rate is less than TER- then accept the Control as effectiveIf population error rate is more than TER- do more testing to get SER lower or conclude control isn’t effective. Do more substantive testing
What are the steps to develop a sampling plan?
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 billedDetermine Sample Size based on tolerable rate for error- risk of assessing Control Risk too low- and expected population error rate.Select Sampling Technique
After a Sampling Plan is developed- what are the steps in sampling?
Perform the Sampling PlanEvaluate ResultsDocument Results
What is Systematic Sampling?
Every certain # of a population is selectedPopulation needs to be randomly orderedPrimary advantage is that population doesn’t require pre-numbering
