CHAPTER E Flashcards
steps of attribute sampling (broad 3)
- planning
- performing
- evaluating
Step 1: Planning (subcategories)
- Determine objective
- Define characteristic of interest
- Define population
Step 2: Performing (subcategories)
- Determine sample size
- Select sample items
- Measure sample items
Step 3: Evaluation (subcategories)
- Evaluate sample results
- Determine objective
Why are we taking a sample in the first place?
- Identify the controls corresponding to the assertions of interest
- Define characteristic of interest
The audit team must define what exactly we are looking for
- Define population
Where should this characteristic show up?
What are all the transactions that involve this characteristic?
- Determine sample size
what are the four main actors that influence sample size?
- Tolerable rate of deviation
- Sampling risk (the risk of over-reliance)
- Expected population deviation rate (EPRD)
- Population size
Tolerable rate of deviation
How many deviations the auditor can tolerate in a particular control and still rely on that control.
- Has an inverse relationship with sample size
Sampling risk (the risk of over-reliance)
The risk that the decision made based on the sample differs from the decision that would’ve been made by examining the population.
(the risk of drawing the wrong conclusion form the sample)
- A one-sided probability
- Has an inverse relationship with sample size
how does an auditor control exposure to sampling risk?
- Determining an appropriate sample size
- Ensuring that all items have an equal opportunity of selection
- Mathematically evaluating sample results
Allowance for sampling risk
A statistical cushion that ensures auditors don’t over rely on controls in attribute sampling.
- If auditors really want to rely on the control, then they can plan to reduce the allowance by increasing sample size.
Expected population deviation rate (EPRD)
What the auditor’s expect to find in the population
How much do you think it actually fails?
- direct relationship with sample size
population size
Determination based on number of applications of control to transactions
- Direct relationship with sample size
confidence level =
1 - risk of over-reliance
- Select sample items
objective & 4 methods
Objective is to select a sample that is representative of the population
- Unrestricted random selection
- Systematic random selection
- Block selection
- Haphazard selection
- Measure sample items
See if they have the characteristic of interest in the right way
Determine whether the control has been performed appropriately
- Missing Items or evidence are classified as deviations
non-sampling risk
Incorrect conclusion unrelated to the nature of the sample
- Occurs if incorrect procedures are performed or mistakes in evaluation or measurement are made
How does an auditor control exposure to non-sampling risk?
training and supervision so that people know what they’re doing
Have appropriate working conditions so people are alert and able to focus, not too tired
Put forth effort
- Evaluate sample results
Projecting what we found onto the full population and drawing some conclusions
- The SRD is the auditor’s best estimate of the rate of deviation in the population
- The auditors “adjust” the SRD to one that has a certain probability off equaling or exceeding the true population deviation rate (this is the URLD)
Deviation condition (exception)
That the attribute being examined is missing
- ex. client doesn’t follow the control, then the numbers don’t match & evidence of completion would be missing
Ex. client has a control to ensure that recorded sales actually occurred. They do this by matching purchase orders, sales invoices, and shipping documents.
Where should the auditors select a sample if they want to test a control that says that all recorded sales actually occurred?
they should select a sample from all sales invoices (all recorded sales)
Sequential sampling (stop-or-go sampling)
Start with an initial (small) sample and see if results are either clearly acceptable or clearly unacceptable
If results are inconclusive, examine additional sample items
Discovery sampling
Select sample size corresponding to an expected population deviation rate of zero.
If one deviation is found, conclude the control is not operating effectively.
Non statistical sampling
Allowed under GAAS but does not allow auditors to control exposure to sampling risk.
Differs from statistical sampling in determining sample size, selecting sample items, and evaluating sample results.
Sample rate of deviation (SRD) =
deviations in the sample / population size
Upper limit rate of deviation (ULRD) =
sample rate of deviation + allowance for sampling risk
Compare this rate to tolerable rate of deviation to decide whether they can rely on the control.
Overreliance
The auditors rely on the control when they shouldn’t
- Ineffective & they get the wrong answer
Underreliance
Not relying on a control when they could
- Inefficient because they have to do more work
