CHAP 17. Audit sampling

Question 1

what are example of risk assessment procedure?

Answer 1

inquiries, observation, inspection, analytical procedures.

Question 2

what are the examples of substantive procedure?

Answer 2

test of details, analytical procedure.

Question 3

sampling relates to which procedure?

Answer 3

Test of details.

Question 4

write selection methods

Answer 4

100% selection(seecting all items for examination), specific item selection(or judgemental selection), audit sampling.

Question 5

which selection applied on small numbers of large values?

Answer 5

100% selection

Question 6

when auditor use audit sampling?

Answer 6

audit sampling use in test of controls and test of details.

Question 7

cases in which 100% sampling may be appropriate.

Answer 7

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)

Question 8

steps to select specific items?

Answer 8

all items over a certain amount(verify large portion),
key items showing certain characteristics( risky items),
understanding of an entity.

Question 9

which selection procedure use less than 100% items for examination?

Answer 9

audit sampling . selecting in such a way that all sample unit have a chance to select.

Question 10

what is the objective of audit sampling?

Answer 10

to provide basis for conclusion about entire population.

Question 11

reasons of failure of audit or audit risk

Answer 11

inherent risk
control risk
detection risk

Question 12

what is meant by inherent risk, control risk, detection risk?

Answer 12

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.

Question 13

which risk you can reduce to reduce audit risk.

Answer 13

detection risk should be reduce to reduce audit risk.

Question 14

what are two companents of detection risk?

Answer 14

sampling : is sample size in insufficient
non sampling: if problem is other than sample

Question 15

which risk is define in this situation. ‘ if auditors conclusion based on sample might be different from the conclusion if entire population is tested’?

Answer 15

sampling risk. this will happen if sample is not representative of population

Question 16

what are the conclusion of sampling risk?

Answer 16

under-reliance/incorrect rejection(affecting audit efficiency leading to increase work)
over-reliance/incorrect acceptance(affecting to audit effectiveness leading to incorrect opinion)

Question 17

what if auditor thinks that controls are less effective( than they actually are) and then think controls more effective (than they actually are)?

Answer 17

if audiotr think less than actual = under reliance
if auditor think more than actual(over reliance)

Question 18

explain under and over reliane in case of misstatment?

Answer 18

material misstatement exist( when actually not) under reliance
material misstatement not exist(when actually does) over reliance

Question 19

how to reduce sampling and non sampling risk?

Answer 19

sampling risk can be reduce by increase more sample size and stratification
non sampling risk can be reduce by proper planning supervision and review.

Question 20

examples of non sampling risk.

Answer 20

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.

Question 21

write steps involve in performing sampling

Answer 21

sample design
performing audit procedure on sample
projection rate of deviation and misstatement
evaluation of result of sampling

Question 22

what are further classification of sample design?

Answer 22

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.

Question 23

who determine purpose for sampling and what are the purpose?

Answer 23

relevant population determind puprpose , it could be test of details(misstatement) and test of control( internal controls) understatement and overstatement,

Question 24

factors on which expected rate of deviation depends?

Answer 24

risk assessment procedures
changes in personnel / internal control
results ofaudit procedure in prior period
results of other audit procedure

Question 25

what are factors depend on expected misstatement?

Answer 25

subjectivity involved in item
result of:
risk assessment procedure
test of controls
audit procedure of prior period
other substantive procedures

Question 26

define tolerable rate of deviation in population

Answer 26

rate set by auditor in respect of which the auditor obtains assurance that the actual rate dosent exceed the rate set by auditor

Question 27

tolerable misstatement in population?

Answer 27

amount of misstatement set by auditor in respect of which auditor obtains assurance that actual amount doesnt exceed from amount set by auditor

Question 28

difference between statistical and non statistical sampling?

Answer 28

statistical involve random selection,probability theory,measurement of sampling risk
non statistical based on judgment of auditor.