Module 7

Question 0

What is nonsampling risk?

Answer 0

includes all aspects of audit risk that are not due to sampling. It is controlled by adequate planning and supervision of audit work and proper adherence to quality control standards.

Examples include:
failure to select appropriate audit procedures
failure to recognize misstatements in documents examined
misinterpreting the results of audit tests

Question 1

T/F Can and Auditor objectively quantify sampling risk to limit it to a level considered acceptable?

Answer 1

True

Question 2

What is Sampling Risk?

Answer 2

The risk that the auditor conclusion, based on a sample, might be different from the conclusion that would be reached if the test were applied in the same way to the entire population

Example
Test of controls sampling risks include the risk of assessing control risk too high and the risk of assessing control risk too low.

Substantive test sampling risks include the risk of incorrect rejection and the risk of incorrect acceptance.

Question 3

What are audit procedures in which sampling may be used?

Answer 3

Tests of controls
Substantive tests
Dual-Purpose Tests

Question 4

What are types of statistical Sampling?

Answer 4

Attributes Sampling - Used in tests of controls - reaches a conclusion in terms of rate of occurrence

Variable Sampling - Used in substantive testing - reaches a conclusion in dollar amounts (Examples of PPS Sampling, and Classical variable sampling)

Question 5

Risk of assessing control Risk too high (alpha Risk type 1 error)?

Answer 5

it is the risk that the assessed level of control risk based on the sample is greater than the true operating effectiveness of the control structure policy or procedure. It relates to audit efficiency as if the auditor assesses risk too high, substantive test will be expanded beyond the necessary level.

Question 6

Risk of assessing control risk too low (Beta risk, Type 2 error)?

Answer 6

It is the risk that the assessed level of control risk based on the sample is less than the true operating effectiveness of the control structure policy or procedure. This relates to audit effectiveness. If the auditor assesses the risk too low, substantive tests will not be expanded to ensure accuracy.

Question 7

What are the 4 methods of selecting the sample?

Answer 7

Random-Number sampling
Systematic sampling
Haphazard Sampling
Block Sampling

Question 8

What is random number sampling?

Answer 8

Every sampling unit has the same probability of being selected, and every combination of sampling units of equal size has the same probability of being selected. Random numbers can be generated using a random number table or a computer program

Question 9

What is systematic Sampling?

Answer 9

Every nth item is selected after a random start. When a random starting point is used, the method provides every sampling unit in the population an equal chance of being selected.

Question 10

What is Haphazard Sampling?

Answer 10

A sampling consisting of units selected without any conscious bias, that is, without any special reason for including or omitting items from the sample. It does not consist of sampling units selected in a “careless” manner, but in a manner that the auditor hopes to be representative of the population. (IT IS NOT USED IN STATISTICAL SAMPLING)

Question 11

What is Block sampling?

Answer 11

A sample consisting of contiguous units (Adv, ease of sampling selection. Dis, may not be representative of the population) Generally the least desirable method

Question 12

An Increase in .. Risk of assessing control risk too low would have what affect on the sample size?

Answer 12

Decrease the sample Size

Question 13

And increase in.. Tolerable rate would have what affect sample size

Answer 13

Decrease

Question 14

An increase in expected population deviation rate would have what affect on sample size?

Answer 14

Increase

Question 15

An increase in Population would have what affect on Sample size?

Answer 15

Increase

Question 16

What is a sequential (stop and go) sampling size technique?

Answer 16

A sampling plan for which the sample is selected in several steps, with the need to perform each step conditional on the results of the previous steps

Question 17

What is Discovering sampling size technique?

Answer 17

A procedure for determining the sample size required to have stipulated the probability of observing at lease on occurrence when the expected population deviation rates is at a designated level

Question 18

How do you perform the Sample Plan?

Answer 18

The Auditor should apply the appropriate audit procedures to all items in the sample to determine if there are any deviations from the prescribed control procedures. Each deviation should be analyzed to determine whether it is an isolated or recurring type of occurrence

• IF something was selected that was voided, if it can be found, replace it. If it cannot be found consider the reasons and implications

Question 19

How do you evaluate the sample results?

Answer 19

Once audit procedures have been performed on all sample items, the sample results must be evaluated and projected to the entire population from which the sample was selected.

Deviation rate = # of observed deviations / sample size.

Compare the deviation rate + allowance for sampling risk rate to the Tolerable rate to determine if the control is working.

Question 20

Reach an overall conclusion by applying audit judgement

Answer 20

If all evidence obtain, including sampling results, supports the auditors level of control risk, the auditor generally does not need to modify planned substantive tests

If the planned level is not supported, the auditor wil (1) test other related controls, or (2) modify the related substantive tests to reflect increased control risk assessment