Section 5: Audit Sampling

Question 1

Audit Risk Formula

Answer 1

AR = RMM (IR x CR) x DR

Question 2

Nonsampling Risk

Component of DR

Answer 2

• Human error
• Misinterpreting audit test results
• Not recognizing mistatements in documents audited

Question 3

Sampling Risk

Answer 3

• Bad Sample
• Sample is not representative of population
• Risk of drawing wrong conclusion

Question 4

Type 1 Sampling Risk

Answer 4

• Efficiency Error (Alpha Risk)
  
  • Population is okay but based on the sample, dont rely
    
    • Underrely on IC - Access RMM high
    • Incorrectly reject an account balance for substantive testing purposes

Question 5

Type 2 Sampling Risk

Answer 5

• Less Effective (Beta Risk)
  
  • Population is bad but based on the sample, the auditor believes everything is correct
    
    • Overrely on IC - assess RMM low
    • Incorrectly accept an account balance for substantive testing purposes,

Question 6

Attribute Sampling

Answer 6

• Applied to test of controls
• Assessing RMM too low makes the audit ineffective
• Assessing RMM too high = inefficient audit

Question 7

Variable Estimation Sampling

Answer 7

• Applied to test of details
• Incorrect acceptance = ineffective audit
• Incorrect rejection = inefficient audit

Question 8

Statistical Sampling

Answer 8

• the use of quantitative measures of the risks the auidtor is taking in the use of sampling
• Auditor will have to use judgment to determine what level of risk is acceptable

Question 9

Non-Statistical Sampling

Answer 9

• Auditor chooses sample size by what makes them comfortable that their conclusions are correct

Question 10

Attribute Sampling

Determine appropriate sample size

TEA

Answer 10

• Tolerable deviation rate - refers to the percentage of time a control can be violated but still lead the auditor to believe it is operating effectively
  
  • Inverse relationship w/ sample size
• Excepted deviation rate - Percentage of time the auditor expect the control to have been violated
  
  • Direct relationship w/ sample size
• Allowable risk of accessing RMM too low
  
  • Inverse effect on sample size

Question 11

Random-Number Sampling

Answer 11

• Numbered documents are selected through the use of random number tables or computer software

Question 12

Systemic Sampling

Answer 12

Every”nth” item is selected

Question 13

Haphazard Sampling

Answer 13

sample consisting of units selected w/o any conscious bias - assuming the random distribution of the population

Question 14

Block Sampling

Answer 14

A sample consisting of contiguous units - ex: a selection of 3 blocks of ten vouchers each

Least desirable method