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Audit > Audit Sampling > Flashcards

Audit Sampling Flashcards

1
Q

What are the characteristics of Statistical Sampling?

A

o Based on formulas
o Helps find an appropriate audit sample
o Helps evaluate evidence obtained
o Helps evaluate results and quantifies Sampling Risk

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2
Q

What are the characteristics of Non-Statistical Sampling?

A

o Based on a human decision

o Equally acceptable as Statistical Sampling

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3
Q

What are the characteristics of Substantive Tests?

A

o Variables Sampling

o Probability Proportionate to Size Sampling

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4
Q

What type of sampling are Control Tests?

A

Attribute Sampling

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5
Q

What is Sampling Risk?

A

Risk that your sample isn’t representative of population

Can happen even if audit is done properly

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6
Q

What is the risk of assessing Control Risk too high?

A

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 still ends up being effective (correct result), but the auditor does more work than necessary.

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7
Q

What is the risk of assessing Control Risk too low?

A

Higher accepted risk of assessing Control Risk too low = Smaller Sample Lower accepted risk of assessing Control Risk too low = Larger Sample

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8
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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9
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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10
Q

What is Non-Sampling Risk?

A

Risk of human (Auditor) missing an error

Also called: Exception, Error, & Deviation

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11
Q

How does Sampling Risk compare to Non-Sampling Risk?

A

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

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

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12
Q

What is the Tolerable Rate?

A

Error rate in population that you are willing to
accept/tolerate

Inverse relationship to Sample Size
Higher Tolerable Rate = Smaller Sample
Lower Tolerable Rate = Larger Sample

If you’re willing to accept a higher probability that errors exist, there is less pressure on the sample

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13
Q

What is the Control Risk relationship to Sample Size?

A

Inverse relationship to Sample Size

Higher accepted risk of assessing Control
Risk too low = Smaller Sample

Lower accepted risk of assessing Control
Risk too low = Larger Sample

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14
Q

What is the Expected Population Error Rate?

A

Judgment call for Auditor, based on Auditor’s experience

Direct relationship to Sample Size
More errors = Larger Sample
Less errors = Smaller Sample

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15
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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16
Q

What is the Allowable Risk of Over-reliance?

A

o Risk of Assessing Control Risk too Low

o Gives you the Sampling Risk

17
Q

What is Classic Variable Sampling?

A

Testing for a dollar amount
Value in sample gives information about value in entire population

(Stratification-reduces sample size, Mean Per Unit)

18
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

19
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

Also Monetary Unit sampling (MUS)

20
Q

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

A

Classic Variables Sampling
o Easy to expand sample size
o Selecting zero and negative balances easy

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

21
Q

What factors affect sample size?

A

Tolerable rate for error - Inverse relationship with sample size
Risk of assessing Control Risk too low - Inverse relationship with sample size
Expected population error rate - Direct relationship with sample size

Population size does NOT affect the sample size - as population is larger- sample size doesn’t grow.

22
Q

What is the formula for Audit Sampling?

A

SER + ASR

23
Q

If population error rate > Tolerable Error Rate (TER)

A

Do more testing to get Sample Error Rate (SER) lower

OR

Conclude control isn’t effective

24
Q

What are the steps to develop a sampling plan?

A

Determine Test Objective
Define Population and Deviation
Determine Sample Size based on (Tolerable Error Rate, Risk of assessing Control Risk too Low, Expected Population or Error Rate)
Select Sampling Technique (Random, Sequential, Systematic)
Perform Sampling Plan
Evaluate Results
Document Results

25
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

26
Q

What is Sequential Sampling?

A

“Stop or Go” Sampling

Each audit step determines the next step

27
Q

What is Discovery Sampling?

A

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

28
Q

How does Block Sampling compare to other sampling methods?

A

Easy to implement, but worst method of sampling

Example: Auditor picks all transactions from June and then projects the results to the rest of the year

29
Q

What is Audit Sampling?

A

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

30
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

Leads to over-reliance on Internal Control, under-testing, and overall Audit Ineffectiveness.

31
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

32
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

33
Q

For what is the Expected Population Deviation (error) Rate used?

A

Used to determine initial level of Control Risk

34
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

35
Q

What is Projected Misstatement?

A

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

36
Q

What is Allowance for Sampling Risk?

A

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.

37
Q

What is the Tolerable Error Rate?

A

The amount of error rate that you can accept

38
Q

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

A

Perform the Sampling Plan
Evaluate Results
Document Results

Audit (8 decks)

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