Audit Sampling Flashcards
_________________ is the maximum monetary misstatement that may exist in an account balance or class of transactions, when combined with misstatements in other accounts, without causing the financial statements to be misstated. It is the threshold of materiality and is based on professional judgment.
Tolerable Misstatement
is an estimating technique that uses the relationship (i.e., ratio) of audit to book values to estimate the population value.
Ratio estimation
is all of the members or elements of a group, universe, or field that constitutes the account balance or class of transactions of interest from which the sample will be drawn and about which the auditor wishes to generalize results.
Population
is a sampling plan in which the laws of probability are used for selecting and evaluating a sample from a population for the purpose of reaching a conclusion about the population. It allows the auditor to design an efficient sample, to measure the sufficiency of the audit evidence obtained, and to evaluate the sample results.
Statistical Sampling
enables the auditor to quantify sampling risk
Statistical Sampling
is used to estimate the value of a population by multiplying the number of units in a population by the sample mean of the population.
Mean-per-Unit Variables Sampling
is a classical statistical sampling method that reaches a conclusion on the monetary amounts of a population.
Variables Sampling
Two basic types of statistical variable sampling are…
- Classical Variable Sampling
2. Dollar-Unit Sampling (DUS)
is dividing the population into relatively homogeneous groups (layers). It is a sample selection strategy that increases the efficiency and coverage of dollar amounts in audit sampling and is used when the population is highly variable (high standard deviation).
Stratified Sampling
arises from the possibility that, when a test of controls or a substantive test is restricted to a sample, the auditor’s conclusions may be different from the conclusions that would have been reached if the tests have been applied in the same way to all of the items in the account balance or class of transactions (i.e., a particular sample may contain proportionately more or less deviation from prescribed internal controls or monetary misstatement than exists in the balance or class as a whole). Sampling risk exists in both statistical sampling and nonstatistical sampling and arises because the sample is not representative of the population.
Sampling Risk
Aspects of sampling risk when performing substantive tests of details:
- The risk of incorrect acceptance (Beta Risk)
- The risk of incorrect rejection (Alpha Risk)
Aspects of sampling risk When performing tests of controls:
- Risk of assessing control risk too low (Beta Risk)
- Risk of assessing control risk too high (Alpha Risk)
For a sample of a specific design, sampling risk varies ________ with the sample size—the _______ the sample size, the _______ the sampling risk.
- Inversely
- Smaller
- Greater
Variability has a ________ relationship with sample size. The greater the variability, the ________ the sample size. The smaller the variability, the ________ the sample size.
- Direct
- Larger
- Smaller
Tolerable misstatement has a(n) ________ relationship with sample size. The smaller the tolerable misstatement, the _______ the sample size. The larger the tolerable misstatement, the ________ the sample size.
- Inverse
- Larger
- Smaller
Tests population for a certain attribute or characteristic.
Attribute Sampling
Attribute Sampling is used during…
Tests of Internal Controls (Compliance)
What is the relationship between confidence levels and standard deviations?
68% confidence level = 1 standard deviation
95% confidence level= 1.96 standard deviations
Expected Deviation Rate has a(n) ________ relationship to sample size. A high error rate results in a ________ sample. A low error rate results in a ________ sample.
- Direct
- Large
- Small
Tolerable Error Rate has a(n) ________ relationship to sample size. A high error rate results in a ________ sample. A low error rate results in a ________ sample.
- Indirect
- Small
- Large
is a special type of attribute sampling used when the occurrence rate (of a deviation) is extremely low. It answers the question, “If I believe that some kind of error or fraud might exist in the recorded balance or transactions, what sample size must I audit to be sure of finding at least one deviation?”
Discovery Sampling
is used for such testing as looking for forged checks or intercompany sales incorrectly classified as trade sales.
Discovery Sampling
uses attribute sampling table to assist in sampling variables.
Probability-Proportional-to-Size (PPS) Sampling
defines the “sampling unit” to be an individual dollar associated with the financial statement element involved.
PPS Sampling
Primary Advantage of PPS Sampling
Efficiency. If there are few differences between audit and book values, PPS sampling may result in smaller sample sizes than the other sampling methods. If there are many differences, however, PPS sample sizes can become too large to be practical.
Primary Disadvantage of PPS Sampling
it does not work very well in auditing negative balances (understatements) or zero (unrecorded) balances. It applies best to audit circumstances involving concerns about overstatements, such as for accounts receivable or inventory; and, then, only when few misstatements are expected.
How does variability affect sample size when using PPS Sampling?
Sample size is NOT affected by variability.
