Sampling Techniques Flashcards
when determining sample size, auditors use TEA
tolerable error/deviaton rate
expected deviation rate
allowance for sampling risk
sampling risk type for internal control testing
Type 1 (misstatement is when it is not): Assessing RMM too high
Type 2 (misstatement is not when it is): Assessing RMM too low
sampling risk type for substantive testing
Type 1 (misstatement is when it is not): Incorrect rejection
Type 2 (misstatement is not when it is): Incorrect acceptance
embedded audit modules (EAMs)
auditors create program steps that are part of the client’s computer program
have to be involved in the computer system design
substantive testing is
testing account balances
perform tests of controls (evaluating effectiveness of I/C). If they are effective…
if they are not effective…
decrease control risk;
increase control risk, substantive testing and sample size
statistical sampling…
uses law of probability
probability of selection is known
quantifies sampling risk
generally used when population is large
nonstatistical sampling
does not use law of probability
auditor judgment
does not quantify sampling risk
generally used when population small
total projected misstatement
(sample audited amount - sample book amount) X population
projected misstatement > tolerable misstatement =
high risk
projected misstatement < tolerable misstatement =
low risk
probability proportional to size (PPS) sample selection
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
classical variables sampling (CSV)
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
probability proportional to size (MUS: monetary unit sampling)
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
variables sampling
- classical variables sampling
- monetary unit sampling
**primarily used in:
–test of details
–reaching conclusions in terms of dollar
amounts (quantitative)
attribute sampling
- discovery sampling
- stop or go sampling (sequential sampling)
**primarily used in:
—test of controls
–reaching conclusions in terms of
rate of occurence (qualitative)
sampling techniques:
random-number sampling
systematic sampling etc
statistical (stratified statistical, variables, attribute)
nonstatistical (stratified nonstatistical, haphazard, block)
setting the control risk too low affects the audit’s
effectiveness
setting the control risk too high affects the audit’s
efficiency
projected misstatements
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
PPS sampling results in
-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
sample interval is calculated by
book value (what is recorded in the books) / sample size
increase in sample size decreases
tolerable deviation rate and upper deviation rate
decrease in sample size increases
tolerable misstatement and the acceptable level of risk
effect of control risk on substantive testing sample size when tests of controls finds I/C not effective
control risk:
increased
substantive testing sample size:
higher
effect of control risk on substantive testing sample size when tests of controls finds I/C effective
control risk:
reduced
substantive testing sample size:
lower
stratified sampling
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