Chapter 5 Flashcards
A lower risk of incorrect acceptance results in
an increase in sample size. An inverse relationship with sample size.
In a probability-proportional-to-size sample the sample error is projected to the
entire interval using the tainting factor, which is the sample error divided by the recorded (incorrect) amount.
When an auditor selects a sample once every twentieth item, it results in
1/20=5% of the population. Then you take the net overstatement (understatement) and divide it by the sample percentage to get the projected total misstatement.
Statistical sampling helps the auditor
measure the sufficiency of the audit evidence because the auditor can quantify the audit risk, thus assisting in limiting it to an acceptable level.
If the actual deviation rate in the population exceeds the maximum deviation rate based on the sample
control risk will be understated, since the control will be less effective than sample results would indicate.
Variable sampling is used to determine
whether given account balances are reasonable.
Attribute sampling would be used to discover
whether misstatements exist in inventory records.
PPS sampling is a method designed to estimate
overstatement errors. Zero, negative, or understated balances require special design considerations.
A principal advantage of statistical methods of attribute sampling over nonstatistical methods is that they provide
a scientific basis for planning the sample size.
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.
When determining the sample size for a test of controls, the auditor should consider the
expected deviation rate (which is the auditor’s best estimate of the deviation rate in the population before the sampling plan is executed), the tolerable deviation rate, and the allowable risk of assessing control risk too low.
In PPS sampling, the auditor controls the risk of incorrect acceptance by specifying
that risk level for the sampling plan. The inputs for PPS are tolerable misstatement, risk of incorrect acceptance, and the recorded amount of the population being sampled.
The statistical concept of precision is used to describe
the auditor’s evaluation of sampling results by calculating the possible error in either direction.
Standard deviation is a measure of
the variability of a frequency distribution about its mean.
