Audit Sampling

Question 1

Variables sampling is used to

Answer 1

test an amount

Variable estimation sampling is used to estimate a numerical amount that can be compared to a recorded amount

Question 2

the higher the tolerable error rate

Answer 2

the smaller the sample size

inverse relationship

Question 3

the higher expected error rate

Answer 3

the higher the sample size

direct relationship

Question 4

incorrect rejection

Answer 4

reject sample when in population it’s correct.

rejecting a population because of a projected error that is based on a SAMPLE exceeds the tolerable misstatement despite the fact that the actual error in the population is below the tolerable misstatement

Question 5

Incorrect acceptance would occur when

Answer 5

projected error that is based on a sample is lower than the tolerable misstatement when the actual error in the population is higher

Question 6

attribute sampling: sample final error rate =

Answer 6

(errors in sample + missing elements in sample)/ total elements in sample + allowance for sampling risk

Question 7

incorrect acceptance

Answer 7

accept sample even though in population it’s incorrect.

When an auditor concludes that an error or deviation rate in a population is acceptable based on a sample even though it is not true of the population, it represents a sampling error that results in incorrect acceptance

Question 8

advantages of PPS sampling (probability-proportional-to-size)

Answer 8

1. standard deviation is not needed
2. a sample is automatically stratified
3. a smaller sample will often result when few errors are expected
4. sampling can begin before the entire population is complete

Question 9

disadvantages of PPS sampling (probability-proportional-to-size)

Answer 9

1. zero and negative balances require special handling
2. large sample sizes result when many errors are expected
3. it is not useful for detecting an understatement

Question 10

Attribute sampling is

Answer 10

statistical sampling

Attribute sampling is used to determine whether a population has a particular attribute

Question 11

Statistical sampling allows an auditor to

Answer 11

quantify sampling risk

Question 12

Stratified nonstatistical sampling, haphazard sampling, and block sampling are all

Answer 12

nonstatistical sampling, which doesn’t allow an auditor to quantify sampling risk

Question 13

Stop-or-go sampling is a

Answer 13

technique of attribute sampling that is used when the error rate is expected to be low.

It allows the auditor to conclude a test and draw conclusions before all items in the sample have been tested if the error rate in items tested is at an acceptably low level

Question 14

PPS (probability proportional to size)

Answer 14

The purpose of variable estimation sampling, which PPS is an example of, is to measure amounts, which can be compared to client data to identify overstatements.

PPS increases the proportion of larger, not smaller items in the sample.

PPS is used in substantive testing and would not be used to determine if a control was being applied. Since items are chosen based on the relationship of their balances to an interval, zero and negative balances are not a focus

Question 15

The higher the expected deviation rate in the population,

Answer 15

the more likely the population will be unacceptable and the auditor will want to make certain not to make the error of incorrect acceptance. To avoid this, the auditor will seek more precision requiring a larger sample size, indicating a direct relationship

Question 16

The higher the acceptable risk of assessing the deviation rate too low,

Answer 16

the less precise the auditor needs to be in measuring the deviation rate, indicating a lower sample size and an inverse relationship.

Question 17

The higher the expected error rate,

Answer 17

the higher the sample size, a direct relationship.

Question 18

The higher the tolerable error rate,

Answer 18

the smaller the sample size, an inverse relationship.