CHAPTER E

Question 1

steps of attribute sampling (broad 3)

Answer 1

1. planning
2. performing
3. evaluating

Question 2

Step 1: Planning (subcategories)

Answer 2

1. Determine objective
2. Define characteristic of interest
3. Define population

Question 3

Step 2: Performing (subcategories)

Answer 3

4. Determine sample size
5. Select sample items
6. Measure sample items

Question 4

Step 3: Evaluation (subcategories)

Answer 4

7. Evaluate sample results

Question 5

1. Determine objective

Answer 5

Why are we taking a sample in the first place?

• Identify the controls corresponding to the assertions of interest

Question 6

2. Define characteristic of interest

Answer 6

The audit team must define what exactly we are looking for

Question 7

3. Define population

Answer 7

Where should this characteristic show up?

What are all the transactions that involve this characteristic?

Question 8

4. Determine sample size

what are the four main actors that influence sample size?

Answer 8

1. Tolerable rate of deviation
2. Sampling risk (the risk of over-reliance)
3. Expected population deviation rate (EPRD)
4. Population size

Question 9

Tolerable rate of deviation

Answer 9

How many deviations the auditor can tolerate in a particular control and still rely on that control.

• Has an inverse relationship with sample size

Question 10

Sampling risk (the risk of over-reliance)

Answer 10

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

Question 11

how does an auditor control exposure to sampling risk?

Answer 11

1. Determining an appropriate sample size
2. Ensuring that all items have an equal opportunity of selection
3. Mathematically evaluating sample results

Question 12

Allowance for sampling risk

Answer 12

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.

Question 13

Expected population deviation rate (EPRD)

Answer 13

What the auditor’s expect to find in the population

How much do you think it actually fails?

• direct relationship with sample size

Question 14

population size

Answer 14

Determination based on number of applications of control to transactions

• Direct relationship with sample size

Question 15

confidence level =

Answer 15

1 - risk of over-reliance

Question 16

5. Select sample items

objective & 4 methods

Answer 16

Objective is to select a sample that is representative of the population

1. Unrestricted random selection
2. Systematic random selection
3. Block selection
4. Haphazard selection

Question 17

6. Measure sample items

Answer 17

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

Question 18

non-sampling risk

Answer 18

Incorrect conclusion unrelated to the nature of the sample

• Occurs if incorrect procedures are performed or mistakes in evaluation or measurement are made

Question 19

How does an auditor control exposure to non-sampling risk?

Answer 19

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

Question 20

7. Evaluate sample results

Answer 20

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)

Question 21

Deviation condition (exception)

Answer 21

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

Question 22

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?

Answer 22

they should select a sample from all sales invoices (all recorded sales)

Question 23

Sequential sampling (stop-or-go sampling)

Answer 23

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

Question 24

Discovery sampling

Answer 24

Select sample size corresponding to an expected population deviation rate of zero.

If one deviation is found, conclude the control is not operating effectively.

Question 25

Non statistical sampling

Answer 25

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.

Question 26

Sample rate of deviation (SRD) =

Answer 26

deviations in the sample / population size

Question 27

Upper limit rate of deviation (ULRD) =

Answer 27

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.

Question 28

Overreliance

Answer 28

The auditors rely on the control when they shouldn’t

• Ineffective & they get the wrong answer

Question 29

Underreliance

Answer 29

Not relying on a control when they could
- Inefficient because they have to do more work