Sampling Techniques

Question 1

when determining sample size, auditors use TEA

Answer 1

tolerable error/deviaton rate
expected deviation rate
allowance for sampling risk

Question 2

sampling risk type for internal control testing

Answer 2

Type 1 (misstatement is when it is not): Assessing RMM too high

Type 2 (misstatement is not when it is): Assessing RMM too low

Question 3

sampling risk type for substantive testing

Answer 3

Type 1 (misstatement is when it is not): Incorrect rejection
Type 2 (misstatement is not when it is): Incorrect acceptance

Question 4

embedded audit modules (EAMs)

Answer 4

auditors create program steps that are part of the client’s computer program
have to be involved in the computer system design

Question 5

substantive testing is

Answer 5

testing account balances

Question 6

perform tests of controls (evaluating effectiveness of I/C). If they are effective…

if they are not effective…

Answer 6

decrease control risk;

increase control risk, substantive testing and sample size

Question 7

statistical sampling…

Answer 7

uses law of probability
probability of selection is known
quantifies sampling risk
generally used when population is large

Question 8

nonstatistical sampling

Answer 8

does not use law of probability
auditor judgment
does not quantify sampling risk
generally used when population small

Question 9

total projected misstatement

Answer 9

(sample audited amount - sample book amount) X population

Question 10

projected misstatement > tolerable misstatement =

Answer 10

high risk

Question 11

projected misstatement < tolerable misstatement =

Answer 11

low risk

Question 12

probability proportional to size (PPS) sample selection

Answer 12

select starting point (SP)
select sample interval
calculate sampling interval
calculate cumulative amounts after each additional item in population
sample items where cumulative amount meets or exceeds next sampling interval

Question 13

classical variables sampling (CSV)

Answer 13

items treated as sample unit
standard deviation for population needed
all items have equal chance of selection
useful to detect understatements
zero/negative balance require no special
attention

Question 14

probability proportional to size (MUS: monetary unit sampling)

Answer 14

treats each dollar value as sampling unit
standard deviation for population not needed
larger items have a higher chance of selection
useful to detect overstatements
zero/negative balance require special
attention

Question 15

variables sampling

Answer 15

1. classical variables sampling
2. monetary unit sampling
   **primarily used in:
   –test of details
   –reaching conclusions in terms of dollar
   amounts (quantitative)

Question 16

attribute sampling

Answer 16

1. discovery sampling
2. stop or go sampling (sequential sampling)
   **primarily used in:
   —test of controls
   –reaching conclusions in terms of
   rate of occurence (qualitative)

Question 17

sampling techniques:

Answer 17

random-number sampling
systematic sampling etc
statistical (stratified statistical, variables, attribute)
nonstatistical (stratified nonstatistical, haphazard, block)

Question 18

setting the control risk too low affects the audit’s

Answer 18

effectiveness

Question 19

setting the control risk too high affects the audit’s

Answer 19

efficiency

Question 20

projected misstatements

Answer 20

an auditor’s best estimate of misstatements in a population based on misstatements identified in a sample compared with the tolerable misstatement to determine whether population is materially misstated

Question 21

PPS sampling results in

Answer 21

-stratified sample
-individually significant items more likely to be selected
-the more expected misstatements, the larger the sample size
-if no misstatements , PPS will yield smaller sample size
-PPS sampling uses book value
-error needs to be projected to the overall population with PPS

the more errors you expect in the population, the larger the sample has to be to ensure you have found all the errors

Question 22

sample interval is calculated by

Answer 22

book value (what is recorded in the books) / sample size

Question 23

increase in sample size decreases

Answer 23

tolerable deviation rate and upper deviation rate

Question 24

decrease in sample size increases

Answer 24

tolerable misstatement and the acceptable level of risk

Question 25

effect of control risk on substantive testing sample size when tests of controls finds I/C not effective

Answer 25

control risk:
increased

substantive testing sample size:
higher

Question 26

effect of control risk on substantive testing sample size when tests of controls finds I/C effective

Answer 26

control risk:
reduced

substantive testing sample size:
lower

Question 27

stratified sampling

Answer 27

a technique of breaking the population down into subpopulations and applying different sample selection methods to a subpopulations

used to minimize the variance within the overall population