Sampling

Question 1

Sampling Risk

Answer 1

The risk that the sample is not representative of the population and that the auditor’s conclusion will be different from the conclusion had the auditor exmined 100% of the population. Sampling

Question 2

Statistical Sampling

Answer 2

Specifiy the sampling risk you are willing to accept and then calculate the sample size that provides that degree of reliability.

Question 3

Nonstatiscal Sampling

Answer 3

Sample size is not determined mathematically. Auditors use their judgment in determing sample size and sample results are judgemental.

Question 4

Advantages of Statistical Sampling

Answer 4

1) Measure sufficiency of audit evidence
2) Provide an objective basis for quantitively evaluating a sample
3) Design an efficient sample
4) Quantify Sampling Risk

Question 5

Attribute Sampling

Answer 5

Used for testing controls.

Question 6

Variables sampling and PPS sampling

Answer 6

Used in substantive testing.

Question 7

Audit Risk

Answer 7

Includes both uncertainities due to sampling and due to factors other than sampling.

Question 8

Sampling Risks in Substantive Testing

Answer 8

Risk of Incorrect Acceptance and Risk of Incorrect Rejection.

Question 9

Sampling Risks in Tests of Controls

Answer 9

Risk of Assessing Control Risk too Low and too High

Question 10

Risk of Incorrect Acceptance or Rejection

Answer 10

Risk that sample that the sample supports the conclusion that the record balance is not materially misstated when in fact it is materially misstated. Relates to the effenciency of the audit.

Question 11

Risk of Assessing Control Risk too Low or High

Answer 11

Risk that the assessed level of control risk based on the sample is less than the true risk based on the actual operating effectiveness of the control. Relates to the effectiveness of the audit.

Question 12

Tolerable Deviation Rate

Answer 12

The maximum rate of deviation prescribed from a prescribed procedure the auditor will tolerate without modifying planned reliance on internal control.

Question 13

Deviation Rate vs Tolerable Deviation Rate

Answer 13

If the estimated deviation rate is less than the tolerable rate for the population, the auditor should the risk that such a result might be obtained even though the true deviation rate for the population exceeds the tolerable rate for the population.

Question 14

Discovery Sampling

Answer 14

Type of attribute sampling appropriate when the auditor believes the deviation rate is 0 or near 0. Used when the auditor is looking for a very critical characteristic.

Question 15

Stop or Go Sampling

Answer 15

Designed to avoid oversampling for attributes by allowing the auditor to stop an audit test before completing all steps. It is used when few errors are expected.

Question 16

Variables Sampling

Answer 16

Used to estimate the numerical measurement of a population.

Question 17

Mean-per Unit Esimation

Answer 17

A sampling plan that uses the average value of the items in the sample to estimate the true population value. Does not require the book value of the population to estimate true value.

Question 18

Ratio Estimation

Answer 18

A sampling plan that uses the ratio of the audited values of items to their book values to project the true population value. Ratio Estimation is a highly effieicent technique when the calculated audit amounts are approximately proporitional to the client’s book amounts.

Question 19

Difference Estimation

Answer 19

Sampling plan to uses the average difference between the audited values of items and their book values to project the actual population value.

Question 20

PPS Sampling

Answer 20

Technique when the sampling unit is defined as an individual dollar in a population. Once a dollar is selected , the entire account is audited.

PPS automatically emphases larger items by straifying the sample. The chance of an item being selected is proportionate to its dollar amount. If no errors are expected PPS sampling generally requires a smaller sample than other methods. Disadvantage of PPS is that zero balances, negative balances and understated balances require special design considerations.

Question 21

Transaction Tagging

Answer 21

Transaction tagging is a technique the auditor uses to electronically mark or tag specific transactions and follow them through the client’s system. Allows to test computerized processing and the manual handling of transactions.

Question 22

Embedded Audit Modules

Answer 22

Sections of the application program code that collect transaction data for the auditor. Often built into an application program when the program is developed.

Question 23

Test Data

Answer 23

Refers to a technique that uses the application program to process a set of test data the results of which are already known. Contains types of invalid conditions in which the auditor is interested in. Advantage of test data is that the live computer files are not affected in any way

Question 24

Integrated Test Facility

Answer 24

Similiar to the test data approach except that test data is commingled with live data. except that the test data is commingled with live data.

Question 25

Parallel Simulation

Answer 25

A technique where the auditor re-processes some or all of the client's live data and then comapres the results with client's files. With controlled processing, auditor observes an actual processing run and compareto rreps the actual results to expected results. Controlled reprocessing uses an archieved copy of the program in question reprocessed.