Chapter 9 - Audit Sampling Flashcards
Mandatory Audit Procedures
Physical Inspection of Assets - particularly inventory
Confirmation of Receivables
Applying:
Substantive Testing- controls follow objects
Test of Controls - controls are effective
To Estimate Characteristics:
Qualitative - valid transactions
Quantitative - Amount is properly calculated
Risk of Sampling
That the conclusion would be different is tested every transaction.
Sampling might not respect the population
Need to select which control on what samples to select out of population
Non Sampling
You could be testing the wrong objective against the wrong sample. Mistake on the judgement and conclusions
Bigger Sample = >
Reduce and Effective Planning
Bigger Sample Size
Non statistical sampling
Judgement Sample
No theory based on statistical analysis
Estimate sample risk by professional judgement
Cons: people are usually conservative and could be ineffective
Advantages of Statistical Sampling
Design Samples
Objective Results
Measure Sufficient Evidence
PCAOB
Inspects the audit working papers
They assess how auditors asses risk and could judge their methods as effective or ineffective.
Selection of Random Sample
Unbaised Sample
Cons: maximize likelihood that samples size is ineffective
Techniques for Random Sample
Number Tables
Number Generators
Systematic Selection
Tech. for Random Sample:
Haphazard Selection:
basis w.o conscious basis & no order
Tech. for Random Sample:
Block Selection:
selected time period: numerical or alphabetical sequence
Tech. for Randolph Sample
Stratification:
Organize population into homogeneous groups
Step 1: What should be factors considered before Determining a Sample size?
Of performing an audit sampling
Expected population deviation rate ( Amount of misstatements, or areas commonly misstated)
Risk of assessing control risk too low
Tolerable rate of deviation
Expected Population Deviation Rate is determined by:
Old Customer:
Past experience with areas of misstatements and understanding of company’s controls and environment.
New Customer:
Results from pilot sampling
Risk of Assessing control risk too low
What the audit wants to basis level of control risk to be based on the understanding of internal control’s weaknesses
Tolerable rate of Deviation
Based on the control risk assessment, what is the tolerable rate of deviation before the statements are considered materially misstated?
Step 2: What should be considered in Determining a Sample size?
Of performing an audit sampling
Use the sample size table that goes with the control risk
Use the expected deviation rate row
Along with the tolerable deviation rate column
At the junction, gives the number of the sample size
Increase in number of purchased _________ on determining the sample size
Does not affect the table or any factors
When the control deficiencies are fixed it affects ________ and would result in ________
expected population deviation and results in a decreased sample size.
High Turn over in a company would result in ______
an increase in the expected deviation rate and an new assessment of the control risk, which may also increase
Decrease in control risk results in a ______ and ______, which ______ the sample size
Decrease of Expected population deviations and a decrease in tolerable deviation rate (MAJOR FACTOR) , which results in a INCREASE IN SAMPLE SIZE.
Because they are trying to find errors due to the expectation of the control risk
Increase in control risk results in a _______ and ______ Which ______ the sample size
Increases the expected deviation levels and increase the tolerable deviation levels which would result in a smaller sample size.
New Vendors would do what to the sample size and affect which consideration?
It would increase the sample size because the expected deviation would increase due to the change
Mean per unit sampling Formula
Allowance Sampling Risk = Tolerable Misstatement /(1+(incorrect acceptance coefficient / Incorrect rejection coefficient)
Sample Size Formula
(Population size * incorrect R.C * Estimated std Dev. / planned allowance sampling risk) ^2
Adjusted Adjusted Sampling Risk
Tolerable Misstatement - (N * Incorrect accept Coefficient * est std. Dev. / square root of Sample size )
