Audit Sampling Concepts Flashcards
A3 M7
___ sampling where auditors specify the sampling risk they are willing to accept & calculate sample size that provides a degree of reliability
statistical
___ sampling where auditors use their judgement in determining sample size & results are evaluated using auditor judgement
nonstatistical
statistical sampling enables the auditor to design an ___ sample.
efficient
statistical sampling enables the auditor to measure the ___ of the audit evidence obtained.
sufficiency
statistical sampling enables the auditor to provide an objective basis for ___ evaluating sample results.
quantitatively
statistical sampling enables the auditor to ___ sampling risk to limit risk to an acceptable level.
quantify
Type of Sampling:
- estimates rate of occurrence & used for testing controls
- yes-or-no questions
attribute
Type of Sampling:
- sampling unit is defined as an individual dollar in a population
- Once a dollar is selected, the entire account (containing that dollar) is audited
- estimates numerical quantity
- used for $ubstantive testing
variable/probability-proportional-to-size (PPS)
uncertainty inherent in applying audit procedures including uncertainties due to sampling & other factors
audit risk
possibility that the sample is not representative of the population, causing the auditor to reach a different audit conclusion
sampling risk
risk that sample supports the conclusion that the recorded balance is not materially misstated when it is (substantive testing)
incorrect acceptance
risk that sample supports the conclusion that the recorded account balance is materially misstated when it’s not (substantive testing)
incorrect rejection
risk that the assessed level of control risk based on sample is less than true risk based on actual operating effectiveness of control (attribute sampling)
control risk too low
assessing control risk too low results in an ___ audit
ineffective
incorrect rejection produces an ___ audit
inefficient
incorrect acceptance produces a ___ audit
ineffective
risk that the assessed level of control risk based on the sample is greater than the true risk based on actual operating effectiveness of control (attribute sampling)
control risk too high
assessing control risk too high results in an ___ audit
inefficient
all aspects of audit risk not due to sampling:
- selecting audit procedures not appropriate to achieve specific objective
- failure by auditor to recognize misstatements in documents examined
nonsampling risk
statistical sampling method used to estimate the rate (%) of occurrence (exception) of a specific characteristic (attribute)
- generally yes or no questions
attribute sampling
maximum rate of deviation/noncompliance from a prescribed procedure the auditor will tolerate without modifying planned reliance on control
tolerable deviation rate
auditor’s best estimate of the deviation rate in the population it was selected from
deviation rate
risk of assessing control risk too low (sampling risk) has a(n) ___ relationship with the sample size
inverse
tolerable deviation rate has a(n) ___ relationship with sample size
inverse
expected deviation rate has a(n) ___ relationship with sample size
direct
sample deviation rate + allowance for sampling risk
upper deviation rate
cushion to protect against undetected deviations
allowance for sampling risk
if upper deviation rate <= tolerable deviation rate, can the auditor rely on the control?
yes
if upper deviation rate > tolerable deviation rate, can the auditor rely on the control?
no
type of attribute sampling appropriate when the auditor believes that the population deviation rate is 0 or near 0
discovery sampling
sampling designed to avoid oversampling for attributes by allowing the auditor to stop an audit test before completing all steps (few errors are expected)
stop-or-go/sequential
maximum monetary misstatement in the related account balance or class of transactions the auditor is willing to accept
tolerable misstatement
separating items into relatively homogeneous groups & treating each group as a separate population
- population has high variable amounts
- reduced sample size
stratification
measures sampling risk by using the variation of the underlying characteristics of interest
classical variables sampling
estimation that uses the average value of the items in the sample to estimate the true population value
mean-per-unit MPU
estimation that uses the ration of the audited (correct) values of the items to their book values to project the true population values
ratio estimation
estimation that uses the average difference between the audited (correct) values of the items & their book values to project the actual population value
difference
auditor should stratify the population when using the ___ estimation
MPU
both the ___ & the ___ estimations result in a smaller sample size
ratio & difference
expected misstatement has a ___ relationship with sample size
direct
standard deviation (population variability) has a ___ relationship with sample size
direct
assessed level of risk has a ___ relationship with sample size
direct
tolerable misstatement has a ___ relationship with sample size
inverse
acceptable level of risk has a ___ relationship with sample size
inverse
tolerable misstatement / reliability factor
sampling interval
does the risk of incorrect acceptance relate to substantive tests or tests of controls?
substantive tests
does the risk of incorrect acceptance affect audit efficiency or effectiveness?
effectiveness
does the risk of incorrect rejection relate to substantive tests or tests of controls?
substantive tests
does the risk of incorrect rejection affect audit efficiency or effectiveness?
efficiency
does the risk of assessing control risk too high relate to substantive tests or tests of controls?
tests of controls
does the risk of assessing control risk too affect audit efficiency or effectiveness?
effectiveness
does the risk of assessing control risk too high relate to substantive tests or tests of controls?
tests of controls
