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ACCO 360 > Chapter 11 > Flashcards

Chapter 11 Flashcards

1
Q

Audit sampling is selective examination of data used when

A
  1. less than 100% of the items in the population are audited

2. each item in the population could be selected as part of the sample

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2
Q

items in audit sampling can also be referred to

A

sampling unit

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3
Q

def: population

A

a set of accounts or transactions from which the auditor wishes to draw a conclusion

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4
Q

def: representative sample

A

a sample with the same characteristics as those of the population

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5
Q

the risk of incorrect conclusion could be due to

A

sampling error or non-sampling error

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6
Q

incorrect conclusion due to sampling error is called

A

sampling risk

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7
Q

incorrect conclusion due to non-sampling error is called

A

non-sampling risk

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8
Q

def: sampling risk

A

inappropriate conclusion because sample is not representative of population

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9
Q

def: non-sampling risk

A

incorrect conclusion due to failure to recognize exceptions and/or inappropriate audit procedures

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10
Q

using sampling as auditors means dealing with three aspects

A
  1. planning the sample
  2. select sample and perform test
  3. evaluate the results
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11
Q

def: statistical sampling

A

apply mathematical rules so that auditors can measure sampling risk in planning and evaluating steps

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12
Q

def: non-statistical sampling

A

use professional judgment to select sample items that will provide most useful info and reach conclusions and populations

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13
Q

sample selection may be

A

probabilistic or non-probabilistic

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14
Q

def: probabilistic sample selection

A

auditor randomly selects items such that each population item has a known probability of being included

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15
Q

def: non-probabilistic sample selection

A

auditor selects sample items using professional judgment rather than probabilistic methods

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16
Q

examples of non-probabilistic sample selection methods (3)

A
  1. directed
  2. block
  3. haphazard
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17
Q

which sample selection method is most used

A

directed sample selection

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18
Q

examples of probabilistic sample selection methods (3)

A
  1. simple random
  2. systematic
  3. probability proportionate to size
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19
Q

which method is both non-probabilistic and probabilistic?

A

stratified (layers of data) sample selection

20
Q

def: directed sample selection

A

each item in the sample is selected on the basis of some judgment criteria

21
Q

def: block sample selection

A

auditors select the first item in a block and the remainder of the block is chosen in sequence

22
Q

def: haphazard sample selection

A

items are chosen without regard to their size, source or other distinguishing characteristics

23
Q

def: simple random sample

A

sample in which every possible combination of population items has equal chance of being selected

24
Q

def: systematic selection

A

auditor calculates an interval and selects the items for the sample based on size of the interval and randomly selected number between 0-sample size

25
Q

def: stratified sampling

A

method of sampling in which all elements in total population are divided into 2+ subpopulations that are independently tested

26
Q

main differences between test of controls, substantive tests of transactions and tests of details of balance is

A

in what the auditor wants to measure

27
Q

what do test of controls measure?

A

the operating effectiveness of controls

28
Q

what do substantive tests of transactions measure?

A

monetary correctness of individual transactions in accounting system

29
Q

if substantive test of transactions is part of dual test what does it measure?

A

the operating effectiveness of controls

30
Q

what do substantive test of balances measure?

A

whether the dollar amounts of account balances are materially misstated

31
Q

which method of sampling for tests of controls?

A

attribute sampling

32
Q

def: attribute sampling

A

a statistical, probabilistic method of sample evaluation that results in an estimate of the proportion of items in a population containing a characteristic or attribute of interest

33
Q

steps involved in attribute sampling (7)

A
  1. determine test objective
  2. population characteristics
  3. initial sample size
  4. select sample and perform audit procedures
  5. evaluate sample results
  6. conclude acceptability of pop
  7. communicate with audit committee or management
34
Q

what method is most popular for control testing

A

non-statistical sampling

35
Q

a key drawback of non-statistical sampling is that the auditor cannot

A

quantify sampling risk + auditor bias in sample selection

36
Q

control testing measures whether

A

the controls are effective

37
Q

substantive tests are used to measure whether the

A

dollar amounts of account balances are materially misstated

38
Q

steps in the audit sampling for tests of details of balances (8)

A
  1. determine if audit sampling applies
  2. the test objective
  3. population characteristics
  4. define misstatement conditions
  5. define the population
  6. define the sampling unit
  7. determine initial sample size
  8. select sample and perform audit procedures
39
Q

def: tolerable misstatement

A

application of performance materiality to a particular sampling procedure

40
Q

the planned sample size _____ as the amount of misstatements expected approaches tolerable misstatement

A

increases

41
Q

ARIA is

A

acceptable risk of incorrect acceptance

42
Q

def: ARIA

A

the risk that the auditor is willing to take of accepting a balance as correct when the true misstatement in the balance is greater than tolerable misstatement

43
Q

how to evaluate sample results from non-statistical sampling for substantive

A
  1. qualitative evaluation
  2. request client to correct known misstatements
  3. qualitative assessment
44
Q

how to conclude on acceptability of population?

A
  1. take no action until tests of other audit areas are completed
  2. perform expanded audit tests in specific areas
  3. increase the sample size
  4. adjust the account balance
  5. refuse to give an unqualified opinion
45
Q

auditor must retain adequate records of

A
  1. procedure performed
  2. methods used to select sample and perform test
  3. results found
  4. conclusion reached
46
Q

documentation is need for both

A

statistical and non-statistical sampling

47
Q

why is documentation needed for both?

A

to evaluate the combined results of all tests

ACCO 360 (11 decks)

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