Week 6-1

Question 1

detection risk function =

Answer 1

OSR * SSR

• OSR = Other Substantive Procedure risk (non-sampling risk), human factor and inherent limitations in audit procedures
• SSR = Substantive Sampling Risk, the risk that the auditor cannot select every transaction (more related to statistical
  sampling)

Question 2

Statistical vs judgmental

Answer 2

• Statistical
  o Random selection of sample
  o Probability theory evaluate results (including sampling risk)
• Judgmental
  o Does not require random selection of sample
  o Professional judgement evaluates results
• ISA 530: Judgmental and statistical should result in same sample sizes

Question 3

Non-sampling risk

Answer 3

• Inherent limitations in OSP (other substance procedures)
  o Auditors selects ineffective OSP
  o Auditor applies OSP ineffectively
  o Audit evaluates results OSP incorrectly

Question 4

Sampling risk

Answer 4

• Beta-risk = risk that the population does not contain a significant misstatement when in fact it does (type II)
• Alfa-risk = risk that the population does contain a significant misstatement when in fact it does not (type I)

Question 5

How reliable is haphazard sampling? Hall, Herron, and Pierce (200

Answer 5

Conclusion: haphazard sampling is NOT reliable
Sample size needs to exceed 30%, most samples are well below 5%

Question 6

Behind the umber: insights into large audit firm sampling policies – Christensen, Elder, Glover (2015)

Answer 6

Conclusion
- ‘’Teams sometimes fail to project an error because the sample error is relatively small, and they fail to recognize that a
projected error coupled with sampling risk might result in a material misstatement.’’
- Four of the six experts that engagement teams have difficulty understanding how to treat identified misstatement
resulting from sampling (lack of understanding of the underlying statistical sampling concepts).