Chapter 10 Flashcards
When is an auditor more likely to use ADA
Data is available and relevant to the assertion being tested
The available data is reliable and internal controls are strong
Data is clean
When is audit sampling more preferable to ADA
Required by professional standards (inventory confirmation, confirmation of receivables)
Weak internal controls
No relevant data
Sampling is more efficient and effective
What is audit sampling
The evaluation of a portion of the population that the auditor expects to be representative of the population to base conclusions on
What is sampling risk
The risk that the auditor reaches an incorrect conclusion because the sample is not representative of the population
What is nonsampling risk
The risk that the auditor reaches an incorrect conclusion for any reason not related to sampling risk
When does nonsampling risk arise
Auditor samples wrong population
Fails to detect a misstatement
Misinterprets an audit result
What is non-statistical sampling
The auditor does not use statistical techniques to determine sample size, select sample items, or measure sampling risk
What is statistical sampling
Uses the laws of probability to compute sample size and evaluate the sample results
What are the advantages and disadvantages of statistical sampling
Advantages: Efficient, you can measure sufficiency of evidence, quantify sampling risk
Disadvantages: Training auditors, time to design and conduct, lack of consistent application
What is a representative sample
When the characteristics of a sample are the same as the population
What is a random sample
A sample free of bias when each item in the population has an equal chance of being chosen. Example: choosing every 7th item
What is stratification
When you break the population into groups with common characteristics. Example: Age
What is a probabilistic and non-probabilistic sample
Probabilistic is a method of selecting a sample that each item has a known probability of being sampled. Non-probabilistic is when the auditor uses professional judgement
What are non-probabilistic sampling methods
Block sample - selecting the first item in a block and the remaining items in block is chosen in sequence
haphazard sample - selection of items without any conscious bias on the part of the auditor
What is probability proportionate to size sampling
Uses attribute sampling theory to express a conclusion in dollar amounts
