Sampling Part 2 M9 Flashcards
What are all of the sampling methods?
- Variables sampling is normally used to estimate a numerical measurement of a population.
- Random number sampling is a technique used to select a sample.
- Stop-or-go sampling is a type of attribute sampling used when testing controls.
- Attribute sampling is used when testing controls as part of the auditor’s evaluation of a company’s internal control.
- PPS Sampling
- Discovery sampling is a special case of sampling for “attributes” (errors) where the auditor’s initial estimate of error occurrence is zero or near zero.
What are the 2 types of sampling in substantive test?
- Variables Sampling
- Probability-Proportional-to-Size Sampling (PPS)
What is variables sampling?
Used to test for resonableness in account balances.
How to calculate sample size?
- The reliability factor given as determined from the table, is 6.3.
- Sampling interval = tolerable misstatement / reliability factor.
- Sampling size = Population / sampling interval.
What are the 3 types of Variable Sampling?
Variables Sampling/Substantive Test
1 of 2 Sampling Substantive Test
- Mean-Per-Unit Estimate
- Ratio Estimation
- Difference Estimation
What is Mean-Per-Unit Estimation?
1 of 3 types of Variables Sampling
Estimate = Avg. Sample Value x Number of Items in the Population
- Average value of all items in the sample to estimate the true population.
- Book value not needed
- Both stratified and unstratified MPU may be used for populations where many monetary errors are expected to occur.
What is Ratio Estimation?
2 of 3 types of Variables Sampling
- The ratio of the audited values of items to their book values to project the true population value.
- Use when audit amounts are proportional to book values.
What is Difference Estimation?
- It uses the difference in the average audited values from the average book value to project the population.
- Used instead of PPS when the differences are not proportional to book values.
What is Probability-Proportional-to-Size (PPS) Sampling?
2nd type of substantive test for sampling (1st typ is Variable Sampling)
2 of 2 Sampling Substantive Test
- Sampling unit is defined by an individual dollar amount in the population. Once selected, the entire account containing that dollar amount is selected for audit.
- Hybrid method because it uses attribute sampling theory to express a conclusion in dollar amounts rather than expressed as a rate.
- Objective is to estimate overstated errors.
- Zero and negative balances will require special consideration.
- Larger items are more likely to be selected.
How to calculate the sampling interval for PPS Sampling?
The number in the population/Sample Size
What is considered when planning a sample test for substantive testing?
The auditor should consider preliminary judgments about materiality levels.
What are the advantages and disadvantages of PPS Sampling?
ADVANTAGES
- Automatically chooses the larger items by stratifying the sample.
- If no errors are expected, PPS requires a smaller sample than the other methods.
DISADVANTAGES
- Zero, negative, and understated balances require special design considerations.
What is the statistical concepts?
PRECISION:
is used to describe the auditor’s evaluation of sampling results by calculating the possible error in either direction.
RELIABILITY:
Measures how frequently the procedure used will yield differences between the estimated value and the population value.
PROJECTED ERROR:
The auditor’s best estimate of the error in the total population based upon evaluating the actual error rate in the sample results. The auditor then adds an allowance for sampling risk to develop a “precision interval” within which the population is expected to fall.
STANDARD DEVIATION:
A measure of the variability of a frequency distribution about its mean.
