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Audit > Module E + F > Flashcards

Module E + F Flashcards

0
Q

Population

A

Entire group of items about which conclusion is desired in

Sampling application

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1
Q

Sampling

A

Process of making a statement about a population of interest

Based on examining only a subset (or sample) of that population

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2
Q

Sample

A

Subset of items drawn from population of interest

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3
Q

Example with sampling, population and sample

A 
Sampling = taking an election poll
Population = eligible voters

Sample = voters responding to pollster’s inquiries

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4
Q

Surveying every eligible voter is…

A

Not cost effective

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5
Q

What are the 2 major stages in an audit when sampling is used?

A

1 evaluating a client’s internal control

2 conducting substantive procedures

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6
Q

Sampling is typically used when the question of interest has what 2 characteristics?

A

1 need for exact information is not important

2 number of items comprising the population is large

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7
Q

Sampling trades effectiveness for…

A

Efficiency

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8
Q

Sampling is used when the gains associated with efficiency exceed…

A

The losses associated with effectiveness

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9
Q

Sampling risk

A

Likelihood that the decision made based on the sample

differs from the conclusion that would have been made if entire
Population had been examined

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10
Q

When decisions made based on sample differ from decisions

That would be made if the entire population had been examined…

A

Sampling error has occurred

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11
Q

How is a sampling error caused?

A

When sample drawn from population does not appropriately

Represent that population

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12
Q

Sampling risk is the likelihood of…

A

Sampling error

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13
Q

No representative sample

A

Sample that differs substantially on 1 or more key characteristics
Of interest from population where sample is drawn

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14
Q

3 major steps to control sampling risk to very low levels

A

1 determining appropriate sample size

2 ensuring all items have equal opportunity to be selected

3 evaluating sample results to control sampling risk

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15
Q

Controlling sampling risk: determining an appropriate sample size

A

As higher percentage of items in population is examined,

Sampling risk decreases

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16
Q

Controlling sampling risk: ensuring that all items have an equal opportunity to be selected

A

If items have equal opportunity of being selected, sampling risk
Decreases

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17
Q

Controlling sampling risk: evaluating sample results to control sampling risk

A

Results from sample are “adjusted”

to consider likelihood that the sample being evaluated doesn’t
appropriately represent the population

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18
Q

In an audit, sampling risk arises from…

A

Use of a nonrepresentative sample

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19
Q

Non sampling risk

A

probability that an incorrect conclusion will be reached

As result of reasons unrelated to the nature of the sample

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20
Q

No sampling risk typically occurs because of…

A

Errors in judgement or execution

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21
Q

Example of non sampling risk

A

If engagement team incorrectly measures the yardage, the sample
Average will be incorrect

And can result in inappropriate conclusion

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22
Q

In nonsampling risk, error is not caused by nonrepresentative
sample but by…

A

An evaluator error

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23
Q

In an auditing context, nonsampling error arises when auditors use…

A

An inappropriate procedure or misinterpret evidence they have
Obtained

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24
Q

Statistical sampling plans

A

Apply the laws of probability to selecting sample items for
Examination and evaluating Sample results

Control sampling risk and help gather appropriate evidence

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25
Q

Non statistical sampling plan

A

Does not apply the laws of probability to choose representative
Items for examination and evaluate the results

Does not allow an individual to control exposure to sampling risk

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26
Q

When do nonstatistical sampling plans make sense?

A

When dealing with a few individuals who have the largest accounts

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27
Q

Does GAAS require statistical sampling procedures?

A

No

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28
Q

What do auditors use more often statistical procedures or nonstatistical sampling procedures?

A

Nonstatistical sampling procedures

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29
Q

3 general stages of a sampling plan in order

A

1 planning
2 performing
3 evaluating

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30
Q

3 steps of planning when implementing a sampling plan

A

1 determine objectivity of sampling

2 define the characteristic of interest

3 define the population

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31
Q

3 steps of performing when implementing a sampling plan

A

1 determine the sample size

2 select the sample items

3 measure the sample items

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32
Q

1 final step of evaluating when implementing a sampling plan

A

Evaluate the sample results

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33
Q

determining the objective of the sampling application

Define with example

A

Directly related to question of interest

Ex. Doe wilsons golf balls increase distance?

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34
Q

Characteristic of interest

Define, example

A

Measure that will be obtained from sample items and eventually evaluated against some Criterion

Ex. Increase in distance (of golf ball)

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35
Q

Population example

A

Amateur golfers in the world

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36
Q

Important factor in determining sample size

A

Acceptable level of sampling risk

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37
Q

Example of selection of sample items

A

Select 50 amateur golfers

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38
Q

4 methods that can be used to select a sample

A

1 unrestricted random selection (random selection)
2 systematic random selection (systematize selection)
3 haphazard selection
4 block selection

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39
Q

Unrestricted random selection (random selection)

A

Audit team identifies series of random numbers from either a
Random number table or computer program

Selects the numbered item in corresponding population

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40
Q

Unrestricted random selection (random selection) example

A

Ex. If team identified 120, 268 and 341 from a computer program,
They would identify the 120th, 268th and 341st golfers from
Prenumbered listings for test

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41
Q

Systematic Random Selection (Systematic Selection)

A

Audit team randomly selects starting point from within the
Population and chooses the nth item thereafter

n is determined based on number of items in population

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42
Q

Sampling interval

2) What is it represented by?

A

Frequency with which items are selected

2) represented by n

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43
Q

How is a sampling interval calculated?

A

sampling interval = Items in Population/sample size

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44
Q

Limitation of systematic selection

A

Population must be randomly ordered

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45
Q

Haphazard selection

A

Items are selected in an unstructured manner, without any
Intentional bias

Ex. Identify items (golfers) as they arrive at the clubhouse, flip
Through roster from clubhouse until 50 golfers selected

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46
Q

Significant limitation of haphazard selection

A

Sampling method can’t be described in sufficient detail to permit
Another individual to replicate it

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47
Q

Block selection

A

Selecting a series of contiguous (or adjacent) items from the
population

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48
Q

Why is block selection less desirable?

A

It is difficult to efficiently obtain a representative sample

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49
Q

3 reasons why random or systematic selection is used with statistical sampling

A

1 provide sufficient likelihood of obtaining representative sample

2 allow probability of obtaining sample items to be determined

3 allow sample selection process to be replicated

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50
Q

Random or systematic selection allow sampling risk to be…

A

Measured and controlled to acceptable levels

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51
Q

In practice, computer software has greatly increased the…

A

Efficiency and effectiveness of selecting sample items

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52
Q

What selection method for sampling do auditors use most of the time?

A

Haphazard selection (a nonstatistical form of selection)

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53
Q

Example of measure the sample items

A

Ex. Having each golfer hit Wilson’s golf balls and compare the
Distance to a competitor’s golf balls

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54
Q

Evaluate sample results:

Precision AKA Allowance for sampling risk

A 
Numeric distance from the estimated population value in which
The true (but unknown) may lie with a given probability
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55
Q

Evaluate sample results:

Reliability AKA Confidence level

A

Likelihood of achieving a given level of precision

Ex. Reliability is 90%, which is equal to 100% less the acceptable
Sampling risk of 10%

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56
Q

Evaluate sample results:

precision interval

A

Range around sample estimate that has certain likelihood

(Equal to reliability) of including true population value

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57
Q

For every level of reliability a unique level…

A

Of precision exists

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58
Q

Audit sampling

A 
Application of an audit procedure to less than 100 percent of items
Within an account balance it class of transactions

For purpose of evaluating some characteristic of balance or class

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59
Q

Rate of deviation

A

Rate at which internal controls are not functioning

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60
Q

The audit team is interested in determining whether the rate at which internal control activities are not functioning (rate of deviation)…

A

Exceeds some permissible rate by the audit team

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61
Q

Tolerable rate of deviation

A

Permissible rate by an audit team

Ex. Permissible rate of deviation for internal controls not functioning

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62
Q

Attributes sampling

A

Rate of deviation exceeds some rate permissible by audit team

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63
Q

When using sampling in substantive procedures, the audit team’s objective is to determine…

A 
Whether an account balance or class of transactions is recorded
And presented according to GAAP
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64
Q

Audit sampling: substantive procedures

A 
Audit team is determining whether amount of dollar misstatement
In account balance/class of transaction exceeds permissible amount
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65
Q

Permissible misstatement

A 
dollar misstatement In account balance/class of transaction 
exceeds permissible amount
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66
Q

Attributes sampling

A

Used when audit team examines a subset of items within a
Population

To determine extent to which a particular attribute exists within
That population

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67
Q

Audit study and evaluation of internal control (attributes sampling):

Objective

A

Determine whether internal control policies and procedures are
Functioning in preventing or detecting misstatements

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68
Q

Audit study and evaluation of internal control (attributes sampling):

Sampling unit

A

Instances where control policies or procedures should have been
Applied

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69
Q

Audit study and evaluation of internal control (attributes sampling):

Evaluation

A

Compare rate of deviation to tolerable rate of deviation

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70
Q

Audit application of substantive procedures (variables sampling):

Objective

A 
Determine whether account balance or class of transactions is 
Fairly recorded
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71
Q

Audit application of substantive procedures (variables sampling):

Sampling unit

A

Transactions or components of account balances or classes of

Transactions

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72
Q

Audit application of substantive procedures (variables sampling):

Evaluation

A

Compare misstatement to tolerable misstatement

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73
Q

The audit team uses attributes sampling in evaluating the effectiveness of the client’s internal controls and assessing…

A

Control risk

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74
Q

Control risk

A

Likelihood that client’s internal control policies and procedures
Fail to prevent/detect material misstatement

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75
Q

How auditors decide if they can rely on internal controls:

In the planning stages of the audit, auditors assess control risk at…

A

A planned level

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76
Q

How auditors decide if they can rely on internal controls:

After planning, They perform tests of controls to determine whether controls are Functioning…

A

Consistent with planned level of control risk

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77
Q

5 procedures used to assess control risk

A

1 identify key controls to rely upon
2 make planned assessment of control risk
3 perform test of controls on key controls
4 assess effectiveness of key controls
5 confirm or reassess level of control risk

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78
Q

During the general procedure used by the audit team to assess control risk, when are a sample of controls examined?

A

Step 3: perform tests of controls on key controls

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79
Q

What step of assessing control risk is based on results of the sample of controls?

A

Step 4: assess effectiveness of key controls

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80
Q

Ultimate objective in attributes sampling?

A

Assess control risk

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81
Q

Tolerable rate of deviation (TRD)

A

Maximum rate of deviation that can exist before auditors reduce
Their reliance on that control

82
Q

Sample rate of deviation

A

Number of deviations discovered in sample divided by sample

Size

83
Q

Upper limit rate of deviation (ULRD)

A

Measure that adjusts the sample rate of deviation for the audit
Team’s acceptable level of sampling risk

Rate of deviation that has a (1 - Risk of overreliance) probability
Of equaling or exceeding the true population rate of deviation

84
Q

Upper limit rate of deviation (ULRD) function?

A

Adjusted rate provides conservative estimate of rate of deviation
That allows audit team to control exposure to sampling risk

85
Q

If the upper limit rate of deviation is less than or equal to the tolerable rate of deviation, auditors…

A

Rely on controls as planned and retain assessment of control

Risk at planned levels

86
Q

If the upper limit rate of deviation is higher than the tolerable rate of deviation, auditors…

A

Reduce their planned reliance on controls and increase their

Assessment of control risk to higher levels

87
Q

1) ARD?
2) TRD?
3) ULRD?

A

1) actual rate of deviation
2) tolerable rate of deviation
3) Upper limit rate of deviation

88
Q

Risk of underreliance AKA Risk of assessing control risk too high

A

Likelihood that auditors’ sample will provide evidence that the
client’s controls are not functioning effectively

when they are functioning effectively

89
Q

Risk of overreliance AKA Risk of assessing control risk too low

A

Likelihood that auditors’ sample will provide evidence that the
client’s controls are functioning effectively

when they aren’t functioning effectively

90
Q

Assessing control risk too high exposes auditors to…

2) assessing control risk too low exposes auditors to…

A

Efficiency loss

2) effectiveness loss

91
Q

Is the risk of underreliance (risk of assessing control risk too high) or risk of overreliance (risk of assessing control risk too low) of more concern to auditors?

A

Risk of overreliance (risk of assessing control risk too low) is of more concern

92
Q

Variable sampling

A

Used to examine population when auditors want to estimate the
Amount (or value) of some characteristics of population

Used when performing substantive procedures

93
Q

Detection risk

A

Risk that auditors substantive procedures (both tests and analytical)
Fail to detect material misstatement

That exists in account balance or class of transactions

94
Q

Extent of further audit procedures is most closely associated with the use of…

A

Variables sampling

95
Q

Detection risk, when is sample sized increased?

A

With lower planned levels of detection risk

96
Q

Tolerable misstatement

A

Level of misstatement auditors are willing to accept during

Performance of substantive procedures

97
Q

Sample estimate of misstatement

A

Difference between the recorded account balance and the audited
Account balance

98
Q

Upper limit on misstatement (ULM)

A

Amount that has a (1-risk of incorrect acceptance) probability
Of equaling or exceeding

the true amount of misstatement In the population

99
Q

When the tolerable misstatement is greater than or equal to the upper limit on misstatement, the account balance is…

A

Not misstated

100
Q

When the tolerable misstatement is less than the upper limit on misstatement the account balance is…

A

Misstated

101
Q

Risk of incorrect rejection

A

Likelihood that auditors will conclude that the client’s account
Balance is materially misstated when it is when it is fairly stated

102
Q

Risk of incorrect acceptance

A

Likelihood auditors will conclude that client’s account balance is
Fairly stated when it is materially misstated

103
Q

Incorrect rejection causes what for auditors?

A

Efficiency loss

104
Q

Risk of incorrect acceptance leads to what for auditors?

A

Effectiveness loss

105
Q

Effectiveness loss may subject auditors to…

A

Litigation if they don’t detect misstatements

106
Q

Efficiency loss could lead auditors to…

A

Perform unnecessary procedures

107
Q

2 Populations used in planning stages for auditors

A

1 attributes sampling

2 variables sampling

108
Q

Planning: attributes sampling

A

All possible applications of controls by client personnel

109
Q

Planning: variables sampling

A

All components or transactions comprising of account balance or
Class of transactions

110
Q

Auditors often perform dual-purpose tests by examining…

A

Both attributes (controls) and monetary (substantive) misstatements

111
Q

Example of a dual purpose test on an invoice

A

Ex. Invoice examined for attribute of credit authorization signature
(Control test)

And monetary misstatement of an incorrect price (substantive test)

112
Q

4 key factors affect auditors’ determination of sample size

A

1 population size
2 expected rate or deviation (or expected misstatement)
3 tolerable rate of deviation (tolerable misstatement)
4 auditors’ acceptable exposure to sampling risk

113
Q

For certain types of variables sampling applications, population variability also affects…

A

Sample size

114
Q

Factor: population size

Effect on Sample Size?

A

Direct, population size increases then sample size increases

115
Q

Factor: Expected rate of deviation (expected misstatement)

Effect on Sample Size?

A

Direct, as expected rate of deviation or misstatement increases,
Sample size increases

116
Q

Factor: tolerable rate of deviation (tolerable misstatement)

Effect on Sample Size?

A

Inverse, as tolerable rate decreases, sample size increases

117
Q

Factor: sampling risk

Effect on Sample Size?

A

Inverse, as acceptable sampling risk decreases, sample size

Increases

118
Q

Factor: population variability

Effect on Sample Size?

A

Direct, as variability increases, sample size increases

119
Q

Population variability is often measured as…

A

The standard deviation (or standard error of the mean)

120
Q

Standard deviation AKA Standard error of the mean

A

Measure of the variability of the population

121
Q

Once sample size has been determined, auditors…

A

Select the sample

Consist of important controls or important balances/transactions

122
Q

After sample items have been selected, auditors…

A

Perform the appropriate audit procedures and measure each

Item

123
Q

4 steps in auditing procedure to evaluate sample results

A

1 identify rate of deviation/or difference btw/ audited values
And recorded values
2 adjust step 1 info to control auditors exposure to sampling risk
3 compare step 2 adjustment to tolerable rate of deviation or
Tolerable misstatement
4 based on step 3 make decision on effectiveness of internal control
Or account balance

124
Q

Documentation of sampling should…

A

Be sufficient for audit team to replicate the task

125
Q

In tests of controls, the attribute (of attribute sampling) is whether…

LAST QUESTION IN MODULE E

A

A specific control was properly applied by client personnel and
Is appropriately functioning to prevent or detect financial st. misstatements

126
Q

First step of attributes sampling process (MODULE F)

A

Identify he objective of attributes sampling

Related to examining key controls corresponding to management
Assertions of interest to audit team

127
Q

2 examples for determining the objective of attributes sampling (MODULE F)

A

Occurrence: does the recorded sale represent an actual sale
Made to customers

Accuracy: has the sale been recorded at the proper dollar amount

128
Q

Step 1: Determining the objective of attributes sampling:

Once relevant assertions have been determined, the audit team then specifies…

2) examples of occurrence and accuracy

(MODULE F)

A

One or more controls, that if functioning, allow client to meet
Recording objectives related to these assertions

2) occurrence: sales invoices supported by valid shipping Document

Accuracy: sales invoices initiated by client personnel as evidence
Of verification of mathematical accuracy

129
Q

Deviation AKA Error, occurrence or exception (MODULE F)

A

Instances where client/it’s personnel don’t follow prescribed
Controls

Instances where controls aren’t functioning as intended

130
Q

Step 2: defining deviation conditions at the outset is important because deviation conditions provide the audit team evidence regarding…

A

Operating effectiveness of client’s internal controls

131
Q

Step 2: defining the deviation control:

Assertion: occurrence

Control: sales invoices are supported by a valid shipping document

What is an example of deviation?

A

Instance where sales invoice is not accompanies by a shipping
Document

132
Q

Step 2: defining the deviation control:

Assertion: accuracy

Control: sales invoices are initialed by client personnel as evidence of verification of mathematical accuracy

What is an example of deviation?

A

Lack of authorized employee initials on sales invoice

Or mathematically incorrect invoice

133
Q

A deviation does not necessarily indicate that…

A

An error in processing a transaction has occurred

134
Q

Population

A

Set of all items about which a conclusion is desired

135
Q

Step 3: defining a population in attributes sampling

A

A population Represents all potential applications of control
Policy or procedure of interest

136
Q

When defining the population, the audit team needs to determine…

A

The physical representation of the population

137
Q

Physical representation of the population AKA Source of the sample

A

Frame of reference that the audit team uses in selecting the sample

138
Q

3 possible physical representations for selecting a sample of sales invoices

A

1 journal list of recorded sales invoices

2 copies of sales invoices contained in a file

3 computerized list of sales invoices

139
Q

2 primary concerns about physical representation are that its is…

A

Complete and corresponds to the actual population

140
Q

Sample size

A

Represents the number of items the audit team examines

141
Q

4 main factors that influence the sample size in an attributes sampling application

A

1 tolerable rate of deviation
2 sampling risk
3 expected population deviation rate
4 population size

142
Q

Step 4: Determining sample size:

Sampling risk 2

A

1 Risk of overreliance

2 risk of assessing control risk too low

143
Q

Tolerable rate of deviation

A

Maximum rate of deviations permissible by audit team

Without modifying planned assessed level of control risk

144
Q

In determine the tolerable rate of deviation, what 2 aspects should the audit team consider?

A

1 planned assessed level of control risk

2 degree of assurance desired by audit evidence in sample

145
Q

If the audit team wishes to assess control risk at low levels, it seems reasonable to hold the client’s internal control to…

A

A higher standard

Use lower tolerable rate of deviation

146
Q

If control risk is high the audit team can use a…

A

Higher tolerable rate of deviation before reducing reliance on
Internal control

147
Q

If the audit team requires a high degree of assurance from the test because related accounts are highly materials or because they are not performing additional tests of controls, it makes sense to have a…

A

Lower tolerable rate of deviation

148
Q

Sampling risk: Risk of underreliance AKA risk of assessing control risk too high:

Sample results and conclusion

2) Unknown State of the population, conclusion

A

(Adjusted sample rate of deviation) is greater than (tolerable
Rate of deviation), Conclusion: control is not functioning

2) (Population rate of deviation) is less than or equal to (tolerable
Rate of deviation), conclusion: control is functioning

149
Q

Sampling risk: Risk of underreliance AKA risk of assessing control risk too high:

Loss

A

Efficiency loss because additional substantive procedures

Will be performed

150
Q

Sampling risk: Risk of overreliance AKA risk of assessing control risk too low:

Sample results and conclusion

2) Unknown State of the population, conclusion

A

(Adjusted sample rate of deviation) is less than or equal to
(Tolerable rate of deviation), conclusion: control is functioning

2) (population rate of deviation) is greater than (tolerable rate
Of deviation), conclusion: control is not functioning

151
Q

Sampling risk: Risk of overreliance AKA risk of assessing control risk too low:

Loss

A

Effectiveness loss

Because insufficient level of substantive procedures will be
performed

152
Q

In an attributes sampling plan, the audit team will control only the exposure to the risk of…

A

Overreliance in determining the appropriate sample size

153
Q

How does the audit team assess the acceptable level of risk of overreliance?

A

This risk depends on planned level of control risk (reflecting
Reliance on client’s internal controls)

154
Q

As planned level of control risk is lower, it becomes quite important
For the audit team to…

A

reduce exposure to risk of overreliance

155
Q

Expected population deviation rate

A

Some level of deviation occurs in client’s internal control policies
or procedures

Factored in to determining sample size

156
Q

Expected population deviation rates are initially based on…2

A

Prior year’s audit

Or on a pilot sample if a first year engagement

157
Q

For tests of controls and attributes sampling to be used, the expected population deviation rate must be…

A

Less than the tolerable rate of deviation

Ex. If tolerable rate of deviation is 6%, it makes little sense to invest the time to perform tests of controls if the expected population deviation rate is higher than 6%

158
Q

If the expected population deviation rate is higher than the tolerable rate of deviation,mother audit team would likely…

A

Choose to reduce reliance on internal control, increase the
Level of control risk

And conduct more extensive substantive procedures

159
Q

Allowance for sampling risk AKA Precision

A

Proximity of sample estimate to the maximum rate of deviation
At a given confidence level

160
Q

For planning purposes, the difference between the tolerable rate of deviation and the expected population deviation rate can be viewed as a form of…

A

Planning precision

161
Q

Once a population reaches a certain size, any increase has…

A

A minimal effect on sample size

162
Q

Unless the population size is very small (which is not common for most attributes sampling applications), the audit team does…

A

No consider population size in determining sample size to a

Great extent

163
Q

AICPA sampling tables incorporate 4 things

A

1 risk of overreliance
2 expected population deviation rate

3 tolerable rate of deviation
4 number of deviations audit team can find and still accept controls
Are acceptable

164
Q

Factor: Tolerable rate of deviation

Determination based on? 2) relationship with sample size

A

Level of control risk

2) inverse

165
Q

Factor: sampling risk (risk of overreliance)

Determination based on? 2) relationship with sample size

A

Level of control risk

2) inverse

166
Q

Factor: expected population deviation size

Determination based on? 2) relationship with sample size

A 
Prior audits (for recurring engagements) or pilot sample for 1st
Engagement

2) direct

167
Q

Factor: Population size

Determination based on? 2) relationship with sample size

A

Number of applications of control to transactions

2) direct

168
Q

1) ROO
2) TRD
3) EPDR
4) n

A

1) Risk of Overreliance
2) Tolerable Rate of Deviation

3) Expected Population Deviation Rate
4) sample size

169
Q

The audit team’s basic goal in step 5: selecting a sample is to increase the likelihood that it is…

A

Representative of the population

170
Q

Step 5 example: if the audit team is examining a sample of sales invoices, this sample should include sales invoices that… 4 things

A

1 have been prepared throughout the year
2 represent both large and small dollar amounts
3 prepared by different individuals involved in invoice prep process
4 represent different customers/geographic locations

171
Q

When measuring sample items (step 6) or in an attributes sampling application, the audit team determines…

2) what is important in this process?

A

Whether the control has been appropriately performed

2) it’s important the audit team not perform the control, but
Examine some form of evidence that client personnel performed it

172
Q

In step 6 measuring sample items, if there is no evidence of the control being performed, the item will be classified as…

A

Deviation

173
Q

Step 6: measuring sample items: test of controls example:

Assertion: occurrence: sales invoices are prepared only for items shipped to customers

Control: existence of shipping document for all sales invoices

How is the control tested?

A

Check for existence of shipping document accompanying sales

Invoice

174
Q

Step 6: measuring sample items: test of controls example:

Assertion: accuracy: extensions and footing on sales invoices are mathematically accurate

Control: existence of initial of client employee indicating mathematical verification

How is the control tested?

A

Examine invoices for evidence if client employee initial or

recalculation if sample invoices

175
Q

Measuring sampling items is the step in the sampling process when…

A

Nonsampling risk can occur

176
Q

Nonsampling risk

A

Risk that audit team’s sample provides an incorrect conclusion
For reasons other than the representativeness of the sample

Ex. Audit team makes unintentional error in evaluating evidence
(Fail to recognize initials in document are for appropriate individual)

177
Q

Step 7 evaluates the results of an attributes sampling application by determining…

A

The upper limit rate of deviation

178
Q

Sample rate of deviation, define

A

Rate of deviations from key controls noted by audit team in

Sample

179
Q

Sample rate of deviation calculation

A 
Sample rate of deviation =
# of deviations noted in sample/sample size
180
Q

Upper limit rate of deviation

A

Conservative estimate of population rate of deviation that allows
Audit team to control exposure to sampling risk to acceptable levels

181
Q

2 pieces of informations the upper limit rate of deviation provides

A

1 there’s a (1-risk of overreliance) probability that the true population
Rate of deviation is less than or equal to upper limit rt. of deviation

2 there’s a (risk of overreliance) probability that the true population
Rate of deviation exceeds the upper limit rate of deviation

182
Q

Calculation of allowance for sampling risk

A

Allowance for sampling risk =

Upper limit rate of deviation - sample rate of deviation

183
Q

If the upper limit rate of deviation is less than or equal to the tolerable rate of deviation, the audit team should…

A

Rely on the internal control as planned and maintain control risk
At planned levels

184
Q

If the upper limit rate of deviation is greater than the tolerable rate of deviation, the audit team should…2

A

1 reduce reliance on internal control and increase control risk

2 expand the sample size

185
Q

To support lower levels of control risk the audit team must set a…

A

Lower tolerable rate of deviation and the sample results must
support lower upper limit rates of deviation

186
Q

Lower levels of control risk and lower tolerable rates of deviation result in…

A

A larger sample for tests of controls

187
Q

Lower levels of control risk are associated with…(what with substantive procedures?)

A

Smaller samples for substantive procedures

188
Q

If a key control is not functioning effectively, what 2 choices of action does the audit team have?

A

1 reduce reliance on the internal control

2 expand the sample to test the control

189
Q

What 3 things are important to document in the last 3 steps of attributes sampling?

A

1 number of deviations identified

2 upper limit rate of deviation

3 audit team’s overall conclusion

190
Q

Fixed sampling plan

A

Audit team selects and evaluates a single sample

191
Q

Why might audit team’s use a sequential sampling plan?

2) when is it used?

A

To provide flexibility and efficiency

2) if they anticipate a low rate of deviation

192
Q

Sequential sampling AKA Stop and go sampling

A

Provide audit team opportunity to draw conclusions using

Smaller sample than traditional fixed sampling plan

193
Q

In sequential sampling if the results are clear and acceptable or unacceptable the audit team can…

2) if the results are inconclusive the audit team can…

A

Draw its conclusion

2) go forward and examine additional items

194
Q

Sequential sampling is used when…

A

The expected population deviation rate is relatively low in relation
To the tolerable rate of deviation

195
Q

Discovery sampling

A

Form of attributes sampling used when deviations from controls
Are very critical

Yet expected to occur at relatively low rate

196
Q

Discovery sampling should be used when…2

A

1 A control is extremely important to audit team’s examination

2 Audit team expects existence of fraud

197
Q

When using nonstatistical sampling in auditing, the first 3 steps would be…

A

Identical to statistical sampling

198
Q

Non statistical sampling does not make use of tables based on…

A

Probabilities

199
Q

Explain how (step 4) determining the sample size for non-statistical is different from statistical sampling

A

not required to quantify standards for nonstatistical sampling

May set judgementally

200
Q

Sample sizes under nonstatistical and statistical sampling should be…

A

Comparable

201
Q

Explain how (step 5) selecting sample items for non-statistical is different from statistical sampling

A

May uses nonrandom methods (haphazard or block sampling)

202
Q

Explain how (step 7) evaluating sample results for non-statistical is different from statistical sampling

A

Judgementally evaluate sample results based on sample rate of
Deviation and tolerable rate of deviation

Audit (36 decks)

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