Audit Sampling Flashcards
What are the characteristics of Statistical Sampling?
o Based on formulas
o Helps find an appropriate audit sample
o Helps evaluate evidence obtained
o Helps evaluate results and quantifies Sampling Risk
What are the characteristics of Non-Statistical Sampling?
o Based on a human decision
o Equally acceptable as Statistical Sampling
What are the characteristics of Substantive Tests?
o Variables Sampling
o Probability Proportionate to Size Sampling
What type of sampling are Control Tests?
Attribute Sampling
What is Sampling Risk?
Risk that your sample isn’t representative of population
Can happen even if audit is done properly
What is the risk of assessing Control Risk too high?
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.
What is the risk of assessing Control Risk too low?
Higher accepted risk of assessing Control Risk too low = Smaller Sample Lower accepted risk of assessing Control Risk too low = Larger Sample
What is the risk of Incorrect Acceptance?
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)
What is the risk of Incorrect Rejection?
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)
What is Non-Sampling Risk?
Risk of human (Auditor) missing an error
Also called: Exception, Error, & Deviation
How does Sampling Risk compare to Non-Sampling Risk?
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
What is the Tolerable Rate?
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
What is the Control Risk relationship to Sample Size?
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
What is the Expected Population Error Rate?
Judgment call for Auditor, based on Auditor’s experience
Direct relationship to Sample Size
More errors = Larger Sample
Less errors = Smaller Sample
What is Attribute Sampling?
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.
What is the Allowable Risk of Over-reliance?
o Risk of Assessing Control Risk too Low
o Gives you the Sampling Risk
What is Classic Variable Sampling?
Testing for a dollar amount
Value in sample gives information about value in entire population
(Stratification-reduces sample size, Mean Per Unit)
What functions are used in conjunction with Classic Variable Sampling?
Mean Per Unit = Sample Average x Number in Population
Stratification - 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 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)
How does Probability Proportionate to Size (PPS) sampling compare to Classic Variables sampling?
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
What factors affect sample size?
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.
What is the formula for Audit Sampling?
SER + ASR
If population error rate > Tolerable Error Rate (TER)
Do more testing to get Sample Error Rate (SER) lower
OR
Conclude control isn’t effective
What are the steps to develop a sampling plan?
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
