Chapter 9: Audit Sampling: An Application to Substantive Tests of Account Balances

Question 1

Allowance for sampling risk

Answer 1

The uncertainty that results from sampling. the difference between the expected mean of the population and the tolerable deviation or misstatement

Question 2

Audit sampling

Answer 2

The selection and evaluation of less than 100 percent of the population of audit relevance such that the auditor expects the items selected to be representative of the population and, thus, likely to provide a reasonable basis for conclusions about the population

Question 3

Classical variables sampling

Answer 3

The use of normal distribution theory to estimate the dollar amount of misstatement for a class of transactions or an account balance

Question 4

Confidence bound

Answer 4

A measure of sampling risk added and subtracted to the projected misstatement to form a confidence interval

Question 5

Expected misstatement

Answer 5

The amount of misstatement that the auditor believes exists in the population

Question 6

Factual misstatements

Answer 6

These are misstatements about which there is no doubt.
Example: an auditor may test a sales invoice and determine that the prices applied to the products ordered are incorrect. Once the products are correctly priced, the amount of misstatement is known. In such cases, the auditor knows the exact mount of the misstatement

Question 7

Monetary-unit sampling (MUS)

Answer 7

Attribute-sampling techniques used to estimate the dollar amount of misstatement for a class of transactions or an account balance

Question 8

Nonsampling risk

Answer 8

The risk that the auditor reaches an erroneous conclusion for any reason not related to sampling risk (e.g., judgement error, inappropriate procedures, failing to detect a misstatement when applying an audit procedure)

Question 9

Nonstatistical sampling

Answer 9

Audit sampling that relies on the auditor’s judgment to determine the sample size, select the sample, and/or evaluate the results for the purpose of reaching a conclusion about the population

Question 10

Projected misstatement

Answer 10

These are the auditor’s best estimate of misstatements in populations, involving the projection of misstatements identified in an audit sample to the entire population from which the sample was drawn.

Question 11

Risk of incorrect acceptance

Answer 11

The risk that the sample supports the conclusion that the recorded account balance is not materially misstated when it is materially misstated

Question 12

Risk of incorrect rejection

Answer 12

The risk that the sample supports the conclusions that the recorded account balance is materially misstated when it is not materially misstated

Question 13

Sampling risk

Answer 13

The possibility that the sample drawn is not representative of the population and that, as a result, the auditor reaches an incorrect conclusion about the account balance or class of transactions based on the sample

Question 14

Sampling unit

Answer 14

The individual item constituting a population being sampled

Question 15

Statistical sampling

Answer 15

Sampling that uses the laws of probability to select and evaluate the results of an audit sample, thereby permitting the auditor to quantify the sampling risk for the purpose of reaching a conclusion about the population

Question 16

Tolerable misstatement

Answer 16

The amount of planning materiality that is allocated to a financial statement account

Question 17

Upper misstatement limit

Answer 17

The total of the projected misstatement plus the allowance for the sampling risk