Chapter 5 Flashcards
What affects the sample size in variables sampling application?
The sample size in a variables sampling application is affected by the variability in the population (generally represented by the standard deviation), the acceptable level of risk (i.e., the risk of incorrect acceptance), the tolerable misstatement, and the expected misstatement.
What affects the sample size in attribute sampling application?
The sample size in an attribute sampling application is affected by the allowable risk of assessing control risk too low, the tolerable deviation rate, and the expected deviation rate.
What is attribute sampling used for?
Testing of controls
Key terms for testing of controls
Controls often relate to authorization, validity, completeness, accuracy, appropriate classification, accounting in conformity with GAAP, and proper period.
Key terms for substantive tests
Words such as account balance, amount, valuation, presentation, and disclosure are more likely to relate to substantive tests.
Describe relationship between tolerable misstatement and sample size.
Inverse; An increase in tolerable misstatement results in a smaller sample size.
Describe relationship between assessed level of control risk and sample size.
Direct; An increase in the assessed level of control risk leads to an increase in sample size.
How would an auditor assess the control risk as too high?
The risk of assessing control risk too high is the risk that the assessed level of control risk based on the sample is greater than the true risk based on the actual operating effectiveness of the control.
What is the primary objective of probability proportional to sample size?
PPS sampling is a method designed to estimate overstatement errors. Zero balances, negative balances, and understated balances require special design considerations.
What is an advantage of statistical methods of attribute sampling over non-statistical methods?
A principal advantage of statistical methods of attribute sampling over non-statistical methods is that they provide a scientific basis for planning the sample size.
How is a stratified mean per unit sampling (MPU) a more efficient statistical technique than unstratified MPU?
A stratified sample generally is more efficient than an unstratified sample since the population is classified in a manner that emphasizes the higher dollar value items. The result is an estimate having a desired level of precision with a smaller sample size.
What is the statistical concept of precision?
The statistical concept of precision is used to describe the auditor’s evaluation of sampling results by calculating the possible error in either direction.
What is non-sampling risk?
Nonsampling risk includes all aspects of audit risk that are not due to sampling. It is always present and cannot be measured; the auditor can only attempt to reduce this risk to a very low level through adequate planning and supervision of the audit and quality control of all firm practices. Nonsampling risk can arise because an auditor failed to recognize misstatements in documents examined.
In the audit of an issuer, a material weakness in controls would make the auditor issue what type of opinion?
An adverse opinion.
In the audit of an issuer, a scope limitation in controls would make the auditor issue what type of opinion?
A scope limitation requires the auditor to disclaim an opinion or withdraw from the engagement.
