Audit Sampling Flashcards
The selection of less than 100% of the population of audit relevance, and the evaluation of that sample, such that the auditor expects the items selected to be representative of the population, and thus likely to provide a reasonable basis for conlusions about the population–used in both tests of controls and substantive tests of details
Audit sampling
A sample that will result in conclusions that, subject to the limations of sampling risk, are similar to those that would be drawn if the same procedures were applied to the entire population
Representative sample
The risk that the auditors’ conclusion based on the sample may be different from the conclusion if the entire population were subjected to the same audit procedure
Sampling risk
Type of sampling that allows the auditor to design an efficient sample, measure it, and objectively quantify sampling risk to limit it to a level considered acceptable–but there are costs involved in training, designing, and selecting)
Statistical sampling
All aspects of audit risk that are not due to sampling–can be controlled by adequate planning and supervision of audit work and proper adherence to quality control standards
Nonsampling risk–human type error
audit procedure directed toward the desgin or operation of a control to assess its effectiveness in preventing or detecting material misstatements in a financial statement assertion
Test of controls–sampling may be used
Audit procedures used to obtain evidence about the validity and properity of hte accounting treatment of transactiosn and balances
Substantive tests–sampling may be used
Audit procedures in which a single sample is used to test a control AND to serve as a substantive test of a recorded balance or class of trnasactions–select higher sample size ofthe 2
Dual test–may use sampling
A type of statistical sampling used in tests of controls that reaches a conclusion in terms of rate of occurance
Attributes sampling
A type of statistical sampling used in substantive sampling that reaches a conclusion in dollar amounts
Variables sampling
Attributes sampling method in which every sampling unit has the same probability fo being selected, and every combination fo sampling units of equal size hhas the same probability of being selected
Random number sampling
An attributes sampling method in which every nth item is selected after a random start
Systematic sampling
An attributes sampling method conisting of units being seelcted without any conscious bias, that is, without any special reaosn for including or omitting items from teh same–not used for statistical sampling b/c doesnt’ give the auditor to measure the proability of slecting a given combination of sampling units
Hapahazard sampling
A method of sampling consisting of contiguous units–easy, but generally the least desireable method b/c not representative
Block sampling
Type of relationship that exists between the risk of assessing control risk too low and sample size
Inverse
The maximum rate of deviation from a prescribed control structure policy or procedure that an auditor is willing to accept without modifying the planned assessed level of control risk; a function of:
1) the planned assessed level of control risk
2) the degree of assurance desired by the sample
Tolerable rate
An estimate of the deviation rate in the entire population–if exceeds tolerable rate, tests will not be performed–used only to determine sample size; not to evaluate sample results
Expected population deviation rate
Type of relationship that exists between the expected deviation rate and sample size
Direct
Describes the fact that an increase in the size of the population normally increasesthe sample size; however any population> 5,000 can be treated as infiinite
Population effect
A sampling plan for which the sample is selected in several steps, with the need to perform each step conditional on the results of the previous steps
Sequential (stop or go) sampling
A procedure for detemrining the sample size required to have a stipulated porability of observing at least one occurrence when teh expected poulaiton deviation irate is ata designated level
Discovery sampling
Represents the sample deviation rate plus an allowance for sampling risk
Upper deviation limit
An estimate used in variables sampling of the maximum monetary misstatement that may exist in an account balance or class of trnasactions, when combined with misstatements in other accounts, without causing the financial statements to be materially misstated (As this increases, sample size decreases)
Tolerable misstatement
misstatement divided by book value–does not exist if book value> misstatement
Taint
Reliability factor x Sampling interval
Basic precision
Variables sampling method that uses normal distribution theory to evaluate selected characteristics of a population on the basis of a sample
Classical variables sampling models
For samples over this size, the distribution of sample means tend to be normally distribriuted about its own mean, even if the population is not normally distributed
30; Central Limit Theorem
measures the dispersion among the respective amounts of a particular chracteristic, for all items in the population for which a sample estimate is developed
Standard deviation
A classical variables sampling technique that projects the sample average to the toal population by multiplying thesame average by the number of items in the population
Mean-per-unit estimation
A classical variables sampling technique that uses the average difference between audited amounts and individual recorded amoutns to estimate hte total audited amount of a population and an allowance for sampling risk
Difference estimation
A classical variables ampling technique that uses the ratio of audited amoutns to recorded amounts in the sample to estimate the total dollar amount of the population and an allowance for sampling risk
Ratio estimation
Uses both the average ratio and the average difference in calculating an estimate of the total amount for the population
Regression approach
Classical variables sampling approaches used as alternatives to mean-per-unit estimation, in that they require a smaller sample size; can only be used if both of the following:
1) invidiual book values must be known and must sum to the toal book value
2) There must be more than few differences (20+) b/t audit and book values
Difference and ratio estimation
Classical variables sampling technique that separates a population into relatively homogenous groups to reduce the sample size by minimizing hte effect of variation of items in the population; most frequently used with the mean-per-unit technique; primary objective is to decreasethe effect of variance in the total population and thereby reduce sample size
Stratification
