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Yaeger AUD > Mod 7 Audit Sampling Key Concepts > Flashcards

Mod 7 Audit Sampling Key Concepts Flashcards

0
Q

If your testing but not projecting…

A

That’s not sampling

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1
Q

Sampling (3 part definition)

A

1 taking part of the population

2 doing some audit tests

3 then projecting the results

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2
Q

A sample represents the population…

A

When it is drawn randomly

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3
Q

Sampling risk

A

Risk that sample does not represent the population

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4
Q

Nonsampling risk

A

Risk of human error

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5
Q

Risk of assessing control risk too low

A

Overreliance on internal controls

by raising detection risk and performing less substantive tests

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6
Q

For the Risk of assessing control risk too low, what is sacrificed?

A

Effectiveness

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7
Q

Risk of assessing control risk too low doesn’t mean…

2) but…

A

Doesn’t mean financial statements are misstated

2) but there’s a high risk that they are

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8
Q

Risk of assessing control risk to high…

A

Under reliance (on internal controls)

Perform more work than needed

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9
Q

What does the Risk of assessing control risk to high sacrifice?

A

Efficiency

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10
Q

Efficiency

A

Quickly

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11
Q

Effectiveness

A

Reach the right conclusion

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12
Q

Incorrect acceptance

A

Auditor incorrectly concludes $ amount is fairly stated

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13
Q

Incorrect acceptance sacrificed…

A

Effectiveness

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14
Q

Incorrect rejection

A

Auditor incorrectly concludes $ amount is not fairly stated

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15
Q

Incorrect rejection sacrificed…

A

Efficiency

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16
Q

Sacrificing effectiveness can effect…

A

Outcome of your opinion on financial statements

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17
Q

What are 2 other terms with the same meaning as “error”

A

1 exception

2 deviation

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18
Q

Error, exception, deviation mean that…

2) example 2

A

Something is not coming out the way it should

2) shipping documents are not billed or are billed for incorrect
Amount

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19
Q

Attribute sampling

A

Looking at control procedures

To see whether it’s operating effectively or it’s not

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20
Q

Nonstatistical sampling involves more…

A

Judgement

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21
Q

Tolerable rate

A

Error rate in population auditor’s willing to live with

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22
Q

Tolerable rate involves…

A

Judgement

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23
Q

The term “rate” is…

A

Always used in testing a control procedure (not a $ amount)

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24
Q

Example of a rate

A

Shipping documents that aren’t billed properly

If 3 aren’t billed properly from a sample of 100, the rate is 3 %

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25
Q

Expected population error rate

A

What error rate the auditor thinks exists based on past experience

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26
Q

Risk of assessing control risk too low is part of…

A

Attribute sampling

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27
Q

Relation of tolerable rate to sample size

2) what does this mean?

A

Inverse

2) If you can tolerate higher error rate in population, sample size
Can be smaller

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28
Q

Relation of expected population error rate to sample size

2) what does this mean?

A

Direct

2) if you think there is a higher error rate in the population, you need
A bigger sample size

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29
Q

Relation of risk of assessing control risk too low to sample size

2) what does this mean?

A

Inverse

2) if you’re going to assess control risk too low, to assess it higher
You can get away with a smaller sample size

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30
Q

If you want to go from a confidence interval of 90% to 95%, you need…

A

A bigger sample size

31
Q

Compliment confidence interval, how is it calculated if confidence interval is 95%?

A

If confidence interval = 95%

The compliment confidence interval = 5% = (1 - 95%)

32
Q

What is the equation for tolerable error rate?

A

Sample error rate + allowance for sample risk < or = tolerable error rate

33
Q

Example of sample error rate

A

Tested 100 documents and found 5 not billed

So sample error rate = 5%

34
Q

Allowance for sampling risk is determined…

A

As a judgement of the auditor

35
Q

If sample error rate + allowance for sampling risk is greater than the tolerable error rate

A

Controls are not operating effectively

36
Q

If sample error rate + allowance for sampling risk is less than or equal to the tolerable error rate then…

A

Controls are operating effectively

37
Q

6 steps of sample planning

A 
1 determine objective of test
2 define your population
3 determine the sample size
4 select the sampling technique
5 perform sampling plan
6 evaluate results/document
38
Q 
1 determine objective of test
2 define your population
3 determine the sample size
4 select the sampling technique
Are all part of...
A

Planning in the sample plan

39
Q

Sample plan:

1) determine objective of test example

A

Want to see if shipments have been billed

40
Q

Sample plan:

Define your population and deviation example

A

Population = shipping documents

Deviation = shipments not billed

41
Q

Sample plan:

Determine the sample size

A

Use statistical or nonstatistical sampling

42
Q

Sample plan:

Select the sampling technique example 2

A

1 random number generator

2 every nth item

43
Q

Randomly

A

Every item in population has an equal chance to get into the sample

44
Q

Systematic sampling

A

Every nth item

45
Q

Systematic sampling (every nth item) is random because…

A

It’s a random start

46
Q

Discovery sampling, main objective

Ex.

A

Wants to virtually assure sample finds errors in population

Ex. Want to find phony employees on the payroll

47
Q

Variables sampling involves…

A

$ amounts

48
Q

Higher confidence level

A

Higher level of assurance that sample represents the population

49
Q

Relation of confidence interval to sample size

What does this mean?

A

Direct

2) to obtain a higher level of assurance that the sample represents
the population, you need a bigger sample size

50
Q

Precision

A

+ or - range

Ex. 100 + or - 3, 3 is the precision

51
Q

Relation of precision to sample size

What does this mean?

A

Direct

2) if you want to be more precise you need a larger sample size

52
Q

Relation of variability in the population to sample size

A

Direct

53
Q

Relation of tolerable misstatement to sample size

What does this mean?

A

Inverse

2) if you can tolerate higher tolerable misstatement, your sample
Size can be smaller

54
Q

Projected misstatement:

Logical unit less than sampling interval, equation

A

Projected misstatement =

Percentage of account misstated x sampling interval

55
Q

Projected misstatement:

Percentage of account misstated AKA “taint” calculation

A

% of account misstated = misstatement/book value

56
Q

Projected misstatement:

Logical unit greater than sampling interval

A

Actual amount of misstatement is considered to be projected misstatement

57
Q

Classical variables sampling uses…

A

Normal distribution theory (standard deviations) to evaluate
Selected characteristics of the population

58
Q

Variations of classical variables sampling:

Mean per unit method, Estimated Total Audited Value Calculation (ETAV)

A

ETAV = population size x average audited value

59
Q

ETAV

A

Estimated total audited value

60
Q

Variations of classical variables sampling:

Mean per unit method, projected misstatement calculation

A

Projected misstatement =

Population BV - estimated total audited value (ETAV)

61
Q

Variations of classical variables sampling:

Difference Estimation Method, calculate average difference in sample

2) calculate projected misstatement

A

Average difference (in sample) = avg. BV - avg. audited value (AV)

2) projected misstatement = population size x avg. difference (sample)

62
Q

Variations of classical variables sampling:

Difference Estimation Method, calculate Estimated total audited value (ETAV), assuming an overstatement has occurred.

A

ETAV = Population BV - projected misstatement (overstatement)

63
Q

Variations of classical variables sampling:

Ratio Estimation Method, calculate estimated total audited value (ETAV)

A

ETAV = (Sample Avg. AV/Sample Avg. BV) x Population BV

64
Q

Example of population BV

A

Total book value of accounts in population

65
Q

Variations of classical variables sampling:

Ratio Estimation Method, calculate Projected Misstatement

A

Projected Misstatement =

Population BV - estimated total audited value (ETAV)

66
Q

advantages of Probability proportional to size (PPS) sampling:

Generally…

A

Easier to use

67
Q

advantages of Probability proportional to size (PPS) sampling:

Size of sample…

A

Not based on variation of audited amounts

68
Q

advantages of Probability proportional to size (PPS) sampling:

Automatically…

A

Results in stratified sample

69
Q

advantages of Probability proportional to size (PPS) sampling:

Individually…

A

Significant items are automatically identified

70
Q

advantages of Probability proportional to size (PPS) sampling:

Usually results in a…

A

Smaller sample size if no misstatements are expected

71
Q

advantages of Probability proportional to size (PPS) sampling:

Can be easily designed and…

A

Sample selection can begin before the complete population

Is available

72
Q

advantages of classical variables sampling:

May result in a smaller sample size if…

A

There are many differences between audited and book values

73
Q

advantages of classical variables sampling:

Easier to expand…

A

Sample size if that becomes necessary

74
Q

advantages of classical variables sampling:

Selection of zero balances…

A

Does not require special sample design considerations

75
Q

Inclusion of negative balances does…

A

Not require special sample design considerations

Yaeger AUD (38 decks)

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