CHAP 17. Audit sampling Flashcards
what are example of risk assessment procedure?
inquiries, observation, inspection, analytical procedures.
what are the examples of substantive procedure?
test of details, analytical procedure.
sampling relates to which procedure?
Test of details.
write selection methods
100% selection(seecting all items for examination), specific item selection(or judgemental selection), audit sampling.
which selection applied on small numbers of large values?
100% selection
when auditor use audit sampling?
audit sampling use in test of controls and test of details.
cases in which 100% sampling may be appropriate.
significant risk which cannot be reduced by other means, 100% examination becomes cost effective due to repetitive nature of calculation, population consist small numbers of large population.
population is not homogenous.(dont share common characteristics)
steps to select specific items?
all items over a certain amount(verify large portion),
key items showing certain characteristics( risky items),
understanding of an entity.
which selection procedure use less than 100% items for examination?
audit sampling . selecting in such a way that all sample unit have a chance to select.
what is the objective of audit sampling?
to provide basis for conclusion about entire population.
reasons of failure of audit or audit risk
inherent risk
control risk
detection risk
what is meant by inherent risk, control risk, detection risk?
inherent risk = misstaments in transaction which are hard to find by audior.
control risk= weak internal controls by management
detection risk= auditor didnt perform procedure properly to find misstatment.
which risk you can reduce to reduce audit risk.
detection risk should be reduce to reduce audit risk.
what are two companents of detection risk?
sampling : is sample size in insufficient
non sampling: if problem is other than sample
which risk is define in this situation. ‘ if auditors conclusion based on sample might be different from the conclusion if entire population is tested’?
sampling risk. this will happen if sample is not representative of population
what are the conclusion of sampling risk?
under-reliance/incorrect rejection(affecting audit efficiency leading to increase work)
over-reliance/incorrect acceptance(affecting to audit effectiveness leading to incorrect opinion)
what if auditor thinks that controls are less effective( than they actually are) and then think controls more effective (than they actually are)?
if audiotr think less than actual = under reliance
if auditor think more than actual(over reliance)
explain under and over reliane in case of misstatment?
material misstatement exist( when actually not) under reliance
material misstatement not exist(when actually does) over reliance
how to reduce sampling and non sampling risk?
sampling risk can be reduce by increase more sample size and stratification
non sampling risk can be reduce by proper planning supervision and review.
examples of non sampling risk.
risk that auditors opinion may be wrong for any reason other than sampling risk i.e use of inappropriate procedures by auditor, misinterpretation of evidence, failing to recognize misstatement, work on tight deadling’ should be zero.
write steps involve in performing sampling
sample design
performing audit procedure on sample
projection rate of deviation and misstatement
evaluation of result of sampling
what are further classification of sample design?
determind purpose and characteristics of population for sampling
define what will be deviation or misstatement
make assessment of expected rate of deviation/misstatement
make assessment of tolerable rate of deviation/ tolerable misstatement
determine sample approach
determine sampling size
select item by choosing appropriate methods.
who determine purpose for sampling and what are the purpose?
relevant population determind puprpose , it could be test of details(misstatement) and test of control( internal controls) understatement and overstatement,
factors on which expected rate of deviation depends?
risk assessment procedures
changes in personnel / internal control
results ofaudit procedure in prior period
results of other audit procedure
what are factors depend on expected misstatement?
subjectivity involved in item
result of:
risk assessment procedure
test of controls
audit procedure of prior period
other substantive procedures
define tolerable rate of deviation in population
rate set by auditor in respect of which the auditor obtains assurance that the actual rate dosent exceed the rate set by auditor
tolerable misstatement in population?
amount of misstatement set by auditor in respect of which auditor obtains assurance that actual amount doesnt exceed from amount set by auditor
difference between statistical and non statistical sampling?
statistical involve random selection,probability theory,measurement of sampling risk
non statistical based on judgment of auditor.
