SU 14.1

Question 1

What’s a population?

Answer 1

The data that
1-a sample is selected from and
2-that conclusions are drawn from.

Question 2

Non-statistical sampling

Answer 2

Based on the auditors subjective judgment to 1- determine the sample size 2- and sample selection

Question 3

What is statistical sampling?

Answer 3

1. Randomly selects sample
   items
2. uses an appropriate statistical method to evaluate the results.
   3.Its objective.

Question 4

What the confidence level?

Answer 4

Also called the reliability level, the percentage of times the sample should reflect the population.

Question 5

Confidence level example

Answer 5

If the allowable risk of over reliance or incorrect rejection is 5%, then confidence level is 95%.

Question 6

What is precision (allowance for sampling risk)?

Answer 6

A measure of how closely the sample represents the population.

Question 7

T or F: Statistical sampling provides a means to quantitatively assess confidence level and precision.

Answer 7

True.

Question 8

What’s sufficiency and appropriateness of evidence?

Answer 8

Sufficiency: measures the quantity of evidence. (Is it enough info?)
Appropriateness: measures the quality of evidence. (Is it the right info?)

Question 9

Statistical sampling applies to these 2 tests:

Answer 9

Test of controls: attribute sampling
Test of details: variables sampling

Question 10

What is overreliance?

Answer 10

When controls are thought to be more EFFECTIVE than they actually are.

*affects audit EFFECTIVENESS and results in an inappropriate opinion.

Question 11

What is undereliance?

Answer 11

Controls are thought to be less effective than they actually are.

This affects audit efficiency and results in more work. (You assume it’s not good enough so you do more work)

Question 12

What is incorrect acceptance?

Answer 12

A material misstatement is said to not exist when it actually does. This type of error affects audit effectiveness and results in an inappropriate opinion.

Question 13

What is incorrect rejection?

Answer 13

A material misstatement is thought to exist when it does not. This affects audit efficiency and results in more work.

Question 14

These 2 things affects audit effectiveness

Answer 14

Overreliance and incorrect acceptance
(both cause a wrong opinion b/c you think things are good and they’re not)

Question 15

These 2 things affect audit efficiency

Answer 15

Underreliance and incorrect rejection
(causes more work b/c you think things are bad when they’re not)

Question 16

Examples of non sampling risk

Answer 16

Apply inappropriate procedures
Misinterpret audit evidence
Not recognize misstatements
Not recognize control deviations

Question 17

Variables sampling represents what test?

Answer 17

Test of details

Question 18

Attribute sampling represents what test?

Answer 18

Test of controls

Question 19

Basic steps in a statistical plan

Answer 19

Determine plan objective
Define the population
Determine levels of sampling risk
Calculate sample size

Question 20

Random Sampling

Answer 20

Each item in the population has an equal and nonzero probability of selection.

Question 21

Systematic sampling

Answer 21

Starts randomly and then takes every nth item in the population.

Question 22

Example of systematic sampling

Answer 22

8200 items in population
Need 50 samples
8200/50=164
Say you start with 35, 35+164= 199, then 199+164=363 etc til you have 50 samples

Question 23

Block sampling

Answer 23

Aka cluster sampling
Selects groups of items for the sampling unit instead of individual items.

Question 24

Variable sampling

Answer 24

test of details

Applies to dollar values or other quantities

Used to estimate the value of a population.

Question 25

Primary methods of variable sampling

Answer 25

Mean per unit
Difference estimation
Ratio estimation
Monetary unit sampling

Question 26

Calculation of Sample size

Answer 26

N= BV x CF / TM

N is sample size
BV is book value
CF is confidence factor
TM is tolerable misstatement

Question 27

Deviations

Answer 27

Deviations from a control increase the RMM but do not necessarily result in misstatements.