Study Unit 5 - Sampling

Question 1

Advantages of Non-Statistical (Judgmental) Sampling

Answer 1

1. Les costly & time consuming
2. Auditor has greater discretion (no time wated)

Question 2

Disadvantages of Judgmental Sampling

Answer 2

Does not provide a quantitative:

1. Measure of sampling risk
2. Expression of sampling results

Also, if the auditor is inexperienced the sample may not be effective.

Question 3

Advantages of Statistical Sampling

Answer 3

1. Quantitative measure of sampling risk, confidence level & precision.
2. Quantitative expression of sampling results
3. Helps design an efficient sample.

Question 4

Disadvantages of statistical sampling

Answer 4

1. Costly & time consuming
2. Requires statistical knowledge & training
3. Requires statistical software

Question 5

Nonsampling risk vs. Sampling risk

Answer 5

• Nonsampling: Not related to sample
• Sampling: Risk the sample does not represent the population
• Sampliing risk is inversely related to the sample size.

Question 6

Attribute Sampling depends on 4 Factors

Answer 6

1. Confidence Level - % a sample is representative of the population
2. Population Size
3. Expected deviation (rate of occurence, variability)
4. Tolerable deviation rate (desired precision) - Inversely related to sample size.

Question 7

Two Attibute Sampling Methods

Answer 7

• Discovery: Will have at least 1 deviation. Used when 1 error rate is critical.
• Stop-or-go: To reduce the sample size. Used when error rate is low.

Question 8

Variables Sampling 4 Factors

Answer 8

1. Confidence Level
2. Population Size
3. Standard Deviation
4. Tolerable Mistatement (Precision) - Inversely related to sample size.

Question 9

Mean Per Unit (MPU) Estimation

Answer 9

• Averages the audited amounts of samples.
• Stratitied MPU is a means of increasing efficiency by separating the population into groups.
• Multiple populations allows for less variablility and a smaller sample.

Question 10

Difference Sampling

Answer 10

1. Estimates the misstatement of an amount by calculating the difference between the observed & recorded amounts.
2. Appropriate when per-item recorded amounts and the total are known

Question 11

Ratio Sampling

Answer 11

• Estimates the mistatement by multiplying the recorded amount by the ratio of total audited amount of the samples to their total recorded amount.

Question 12

Monetary Unit Sampling (MUS) a.k.a. Probability-proportion-to-size (PPS) Sampling

Answer 12

1. Sampling unit is a unit of money
2. Appropriate for testing overstatements of acct. balances
3. Useful if FEW misstatements are expected
4. Does not require a measure of variability.

Question 13

Statystical Control Charts Advantage & Disadvantage

Answer 13

• Makes trends & cycles visible, but
• Does not indicate causes of variation.

Question 14

4 Statistical Chart Types

Answer 14

• P Charts - Show % of defects
• C Charts - Show defects per item
• R Charts - Show range of dispersion of a variable
• X-Bar chart - Shows the sample mean for a variable

Question 15

5 Causes of Variations

Answer 15

1. Random (by chanse)
2. Implentation deviations - Occur due to human or mechanical failure
3. Measurement variations - Occure due to errors in measurement of actual results
4. Model Fluctuations - errors in formulation of decision model.
5. Prediction variances - caused by errors in forcasting data of a decision model.