Module E + F Flashcards
Population
Entire group of items about which conclusion is desired in
Sampling application
Sampling
Process of making a statement about a population of interest
Based on examining only a subset (or sample) of that population
Sample
Subset of items drawn from population of interest
Example with sampling, population and sample
Sampling = taking an election poll Population = eligible voters
Sample = voters responding to pollster’s inquiries
Surveying every eligible voter is…
Not cost effective
What are the 2 major stages in an audit when sampling is used?
1 evaluating a client’s internal control
2 conducting substantive procedures
Sampling is typically used when the question of interest has what 2 characteristics?
1 need for exact information is not important
2 number of items comprising the population is large
Sampling trades effectiveness for…
Efficiency
Sampling is used when the gains associated with efficiency exceed…
The losses associated with effectiveness
Sampling risk
Likelihood that the decision made based on the sample
differs from the conclusion that would have been made if entire
Population had been examined
When decisions made based on sample differ from decisions
That would be made if the entire population had been examined…
Sampling error has occurred
How is a sampling error caused?
When sample drawn from population does not appropriately
Represent that population
Sampling risk is the likelihood of…
Sampling error
No representative sample
Sample that differs substantially on 1 or more key characteristics
Of interest from population where sample is drawn
3 major steps to control sampling risk to very low levels
1 determining appropriate sample size
2 ensuring all items have equal opportunity to be selected
3 evaluating sample results to control sampling risk
Controlling sampling risk: determining an appropriate sample size
As higher percentage of items in population is examined,
Sampling risk decreases
Controlling sampling risk: ensuring that all items have an equal opportunity to be selected
If items have equal opportunity of being selected, sampling risk
Decreases
Controlling sampling risk: evaluating sample results to control sampling risk
Results from sample are “adjusted”
to consider likelihood that the sample being evaluated doesn’t
appropriately represent the population
In an audit, sampling risk arises from…
Use of a nonrepresentative sample
Non sampling risk
probability that an incorrect conclusion will be reached
As result of reasons unrelated to the nature of the sample
No sampling risk typically occurs because of…
Errors in judgement or execution
Example of non sampling risk
If engagement team incorrectly measures the yardage, the sample
Average will be incorrect
And can result in inappropriate conclusion
In nonsampling risk, error is not caused by nonrepresentative
sample but by…
An evaluator error
In an auditing context, nonsampling error arises when auditors use…
An inappropriate procedure or misinterpret evidence they have
Obtained