Audit Sampling

Question 1

What is the testing of less than 100% of the items within an account balance or class of transactions in order to evaluate some characteristic of the balance or class?

Answer 1

Audit sampling

Question 2

What 2 things must the samples be?

Answer 2

Unrestricted and randomly selected

Question 3

What is the measure of “variability” which refers to the range of values within the population?

Answer 3

Standard deviation

Question 4

What is the risk that the sample is not representative of the population and that the auditor’s conclusion will be different from the conclusion had the auditor examined 100% of the population?

Answer 4

Sampling risk

Question 5

What are the 2 methods of audit sampling?

Answer 5

Statistical or Nonstatistical

Question 6

What type of sampling is evaluated quantitatively?

Answer 6

Statistical sampling

Question 7

What type of sampling is evaluated judgmentally?

Answer 7

Nonstatistical sampling

Question 8

Does statistical sampling eliminate the needs for auditing judgment?

Answer 8

No

Question 9

What gives all items in the population an equal chance to be included in the sample to be audited?

Answer 9

Random sample selection

Question 10

What are the 2 types of sampling?

Answer 10

Attribute and variable

Question 11

What type of sampling is used for testing internal controls?

Answer 11

Attribute sampling

Question 12

What type of sampling is used for substantive testing of account balances?

Answer 12

Variables sampling

Question 13

What is the uncertainty inherent in applying audit procedures?

Answer 13

Audit risk

Question 14

Audit risk includes?

Answer 14

Uncertainties due to sampling and other factors

Question 15

What type of risk is a chance the sample is “wrong”

Answer 15

Sampling risk

Question 16

In performing substantive tests of details, the auditor is concerned with two aspects of sampling risk?

Answer 16

Risk of incorrect acceptance and incorrect rejection

Question 17

What is the risk that the sample supports the conclusion that the recorded account balance is not materially misstated when in fact it is materially misstated? Is it ineffective or inefficient?

Answer 17

Risk of incorrect acceptance; Ineffective

Question 18

What is the risk that the sample supports the conclusion that the recorded account balance is materially misstated when in fact it is not materially misstated? Is it ineffective or inefficient?

Answer 18

Risk of incorrect rejection; Inefficient

Question 19

What type of risk is risk of incorrect acceptance?

Answer 19

Beta risk

Question 20

What type of risk is incorrect rejection?

Answer 20

Alpha risk

Question 21

In performing tests of controls, the auditor is also concerned with two aspects of sampling risk?

Answer 21

Risk of assessing control risk too low and too high

Question 22

What is the risk that the assessed level of control risk is less than the true risk based on the actual operating effectiveness of the control? Is it ineffective or inefficient? What type of risk is it?

Answer 22

Risk of assessing control risk too low; Ineffective; Beta risk

Question 23

What is the risk that the assessed level of control risk based on the sample is greater than the true risk based on the actual operating effectiveness of the control? Is it ineffective or inefficient? What type of risk is it?

Answer 23

Risk of assessing control risk too high; Inefficient; Alpha risk

Question 24

When planning a particular audit sample for tests of controls, the auditor applies professional judgment in considering?

Answer 24

Objective, tolerable deviaiton rate, auditor’s allowable risk of assessing control risk too low, and characteristics of the population

Question 25

How do you calculate the upper deviation rate?

Answer 25

Sample deviation rate plus allowance for sampling risk

Question 26

Does an auditor rely on the control if UDR <= TDR?

Answer 26

Yes

Question 27

Does an auditor rely on the control if UDR > TDR

Answer 27

No

Question 28

What type of sampling is used for detecting fraud or other critical items?

Answer 28

Discovery sampling

Question 29

What technique is used when a population has highly variable recorded amounts?

Answer 29

Stratification

Question 30

What are the 3 commonly used classical variables sampling plans?

Answer 30

Mean-per-unit, ratio, and difference

Question 31

How to calculate mean-per-unit estimation?

Answer 31

Average value of item x number of items in population

Question 32

How to calculate ratio estimation?

Answer 32

(Corrected value / book value) x total book value

Question 33

How to calculate difference estimation?

Answer 33

(((Book value - corrected value) / number of sample) x population) - total book value

Question 34

Sample size will increase if the following increase?

Answer 34

Expected misstatements, standard deviation, and assessed level of risk

Question 35

Sample size will decrease if the following increase?

Answer 35

Tolerable misstatement and acceptable level of risk

Question 36

What is a disadvantage of PPS?

Answer 36

Zero, negative, and understated balances generally require special design considerations

Question 37

How do you determine the sample size for PPS?

Answer 37

Tolerable misstatement / reliability factor = sampling interval then recorded amount of the population / sampling interval = Sample size