Chapter 17: Audit Sampling for Tests of Details of Balances Flashcards
Test of controls concern is testing the ___________ of internal controls
effectiveness
Substantive tests of transactions concern is both the ___________ of the controls and the monetary _________ of transactions in the accounting system
effectiveness
correctness
Tests of details and balances concern is determining whether the dollar amount of an account balance is ________ ________.
materially misstated
For tests of details of balances, auditors use sampling methods that provide results in dollar terms. 3 primary types of sampling methods for calculating dollar misstatements include:
1) nonstatistical sampling
2) _________ _____ sampling
3) _________ sampling
monetary unit
variables
With regards to tests of details of balances, the sampling unit for nonstatistical sampling is usually a customer account, and individual ________, or a line item on a transaction. Auditor often selects key items to test individually and subjects the rest to sampling.
transactions
_______ ______ of ________ _________ is the risk the auditor is willing to take of accepting a balance as correct when the true misstatement in the balance is greater than the tolerable misstatement
acceptable risk of incorrect acceptance (ARIA)
If the auditor wants more assurance in auditing a balance, ARIA is set _______.
lower
There is a _______ relationship between ARIA and sample size.
inverse
Primary factor affecting auditor’s decision about ARIA is assessed control risk: when controls are effective, can _______ assessed control risk and _______ ARIA- this in turn reduces sample size
reduce
increase
What action are you to take if a population is rejected?
Take no action until tests of other audit areas are completed
perform _______ audit tests in specific areas.
________ sample size
________ account balance
request the client to correct the population
Refuse to give an __________ opinoin
expanded
increase
adjust
unqualified
______ _______ sampling is an innovation in statistical sampling methodology that was developed specifically for use by auditors
monetary unit
MUS uses _____-sampling theory to express a conclusion in dollar amounts rather than as a rate of occurrence
attribute
MUS is designed primarily to test for __________ errors.
overstatement
MUS is most appropriate for ____ _____-rate population
low error-rate
In comparing the audit sampling for tests of details and balances and tests of controls and substantive tests of transactions:
1) state the objectives of the audit test
2) decide whether the audit _______ applies
3) define the ______ conditions
4) define the ______
5) define the sampling _____
which one is different in test of controls and substantive test of transactions?
2) sample
3) misstatement
4) population
5) unit
3- define the attributes and exception conditions
What is it supposed to be in the tests of controls and test of substantive tests of transactions:
6) specify tolerable misstatement
specify the tolerable exception rate
What is it supposed to be in the tests of controls and test of substantive tests of transactions:
7) specify acceptable risk of incorrect acceptance
specify acceptable risk of assessing control risk too low
What is it supposed to be in the tests of controls and test of substantive tests of transactions:
8) estimate the misstatements in the population
estimate the population exception rate
In comparing the audit sampling for tests of details and balances and tests of controls and substantive tests of transactions:
9) determine the _____ sample size
10) select the sample
11) perform the audit ________
12) generalize form the sample to the ______-
9) initial
11) procedures
12) population
What is it supposed to be in the tests of controls and test of substantive tests of transactions:
13) analyze the misstatements
analyze the exceptions
14) Decide the _________ of the population
acceptability
Differences between MUS and nonstatistical sampling:
The definition of the sampling unit is an individual __________
dollar
Differences between MUS and nonstatistical sampling:
the population size is the recorded _________ population
dollar
Differences between MUS and nonstatistical sampling:
preliminary judgment of __________ is used for each account instead of tolerable misstatement
materiality
Differences between MUS and nonstatistical sampling:
sample size is determined using a ____________ _________
statistical formula
Differences between MUS and nonstatistical sampling:
a formal decision rule is used for deciding the _________ of the population
acceptability
Differences between MUS and nonstatistical sampling:
sample selection is done using ___________ __________ to size sample selection
probability proportional
Differences between MUS and nonstatistical sampling:
auditor _____________ form the sample to the population using MUS techniques.
generalizes
Auditor must generalize from sample to population by:
1) projecting _________ from the sample results to the population
2) determining the related sample ______
misstatements
error
__________ sampling is using knowledge of sampling distributions to draw statistical conclusions about the population
variable
some methods of variable sampling are:
________ estimation
_____ estimation
____-per-unit estimation
difference
ratio
mean
in regards to variable sampling:
mathematical computations for variables sampling are complex, therefore auditors typically ________ _________ to perform the computations
computer software
in regards to variable sampling:
can easily handle both ____________ and ____________ errors
overstatement
understatement
in regards to variable sampling:
most appropriate for populations that contain a moderate to ___ rate of misstatement
high
