sampling Flashcards
What is tolerable deviation rate
max rate of error the auditor can accept
what is expected deviation rate
auditors estimated error rate
what is upper deviation rate
high end of range for auditors estimate of error
what is allowance for sampling risk
adjusts sample rate to get to upper deviation rate
what is the equation for upper deviation risk
sample deviation rate
\+
allowance for sampling risk
=
upper deviation rateWhich factors affect sample size
- risk of assessing control risk too low
- tolerable deviation rate
- expected deviation rate
What is the relationship between sample size and risk of assessing control risk too low
inverse relationship
what is the relationship of sample size and tolerable deviation rate
inverse relationship
what is the relationship b/w sample size and expected deviation rate
direct relationship
when would you use discovery or stop and go sampling methods
few or no deviations are expected
what factors have a inverse relationship to sample size for variable sampling
- tolerable misstatement
- acceptable level of risk
what factors have a direct relationship to sample size for variable sampling
- expected misstatement
- population variability
- assessed level of risk
what relationship does sample size and risk of incorrect acceptance have?
inverse relationship. low risk of incorrect acceptance requires higher sample size.
explain the relationship between detection risk and substantive tests
inverse relationship.
what is detection risk
chance that auditor will fail to find material misstatements is low
what happens is a auditor has a discrepancy with evidence while doing testing
the auditor should reevaluate their risk of fraud and do alternative procedures. They would not keep testing the evidence since they know that particular evidence has issues. they would not increase the sample size
What happens at the conclusion of an audit using audit data analytics.
at the conclusion of an audit using ADA’s the auditor will use ADA’s to
- form an overall conclusion b/c at that point they will have a deeper understanding of the entity and may use it to perform procedures similar to risk assessment procedures
- gain comfort that no material misstatements went unidentified
- update existing analytics with numbers that were revised during the audit
what is the auditors most reliable form of evidence
auditors direct personal knowledge through observation, examination, inspection, or recalculation
what is the hierarchy of audit evidence
Auditors direct personal knowledge
External evidence
Internal evidence
Oral evidence
if the auditor performs risk assessment procedures and decides not to perform test of controls what does that mean?
it means that the auditor does not think there is a cost benefit to performing test of controls. it does not mean that the auditor thinks that the controls are operating effectively because a auditor cannot make that conclusion without testing controls.
do analytical procedures test controls?
analytical procedures do not test controls because analytical procedures are substantive tests that test account balances.
what is risk of material misstatement
risk that the financials are misstated
inherent risk *control risk
what is control risk
risk of material misstatement given that there are no controls
what is inherent risk
risk of material misstatement
does reliable evidence relating to managements assertions need to be conclusive
no it just needs to be corroborative and persuasive
what does audit evidence consist of
underlying accounting data and corroborative evidence
is a clients accounting data sufficient audit evidence to support financial statements?
no because you need accounting data and corroborative data to be considered sufficient
what is the relationship between sample size and control risk
direct.
what does the relevance of audit evidence depend on
?
PCAOB says audit evidence depends on:
- design of audit procedure, if what designed to directly test an assertion or if its testing an over or understatement
- timing of audit procedure
how do you figure out the projected misstatement
((recorded amount- audited amount)/ recorded amount) * sample interval
can control risk, inherent risk, and detection risk be assessed in nonquantitative terms?
yes
what is the definition of exception for audit testing
response that indicates a difference in clients records and info given by the confirming party
