AU 14 - Sampling

Question 1

3 methods of selecting for testing?

Answer 1

• selecting all items
• selecting specific items
• audit sampling

Question 2

When is it appropriate to use all items?

Answer 2

• population consists of small number of large-value items
• there is sig risk, and other means do not provide appropriate evidence
• repetitive nature of automated systems makes this cost-effective.

Question 3

What specific items may be counted? Does this constitute audit sampling?

Answer 3

• high value or key items
• all items over a certain amount
• items to obtain information

NO, it does not constitute sampling and can’t be extrapolated to the general population

Question 4

Reasons for using audit sampling

Answer 4

• can be costly to test 100% of population
• can be time consuming to test 100% of population
• nature and materiality of account does not need 100% to be tested
• practitioner only required to obtain reasonable assurance, not absolute so less testing required

Question 5

What is sampling risk?

Answer 5

Risk that the conclusions drawn from the sample may not be extrapolated to whole population

Question 6

What is a deviation? And a misstatement?

Answer 6

Deviation occurs when controls not performing as it was designed. Misstatement occurs when reported amount differs from actual amount determined when applying audit procedure.

Question 7

3 considerations of population characteristics

Answer 7

• is sample representative of the population?
• is population complete?
• what is expected deviation or misstatement rate?

Question 8

3 ways of stratifying a population

Answer 8

• monetary value
• identifying characteristics
• representative items

Question 9

Formula for calculating sample error rate

Answer 9

Total misstatements discovered in sample items / Total book value of representative items tested x Book value of representative item population

Question 10

Statistical sampling approach

Answer 10

• random selection of sample items
• use of probability theory to evaluate sample results, including measurement of sampling risk

Question 11

Statistical sampling +/-

Answer 11

+ objective and defensible
+ provides a way of estimation of sample size
+ allows an estimate of the sampling risk and error of entire population
- more work involved
- audit staff involved may need more training

Question 12

Non-stat sampling +/-

Answer 12

+ takes less time
+ less expensive
- cannot draw statistical inference
- based upon professional judgment so more open to scrutiny

Question 13

5 types of sample selection techniques

Answer 13

random selection
systematic selection
monetary unit sampling
haphazard selection
block selection

Question 14

Sample evaluation answers which two questions

Answer 14

• was sufficient appropriate audit evidence obtained?
• are there material errors in the population?