Audit Sampling

Question 1

An auditor sets a tolerable amount of misstatement for an item at $30,000 and performs a sampling for variables test. Based on the preliminary judgment, the population (an account balance) is estimated at a total value of $900,000. However, the client reports this figure at $922,000. What is the impact of this on the audit sample?

Answer 1

Because the difference between the projected balance of the population and the client’s reported figure is less than the auditor’s maximum tolerable amount of misstatement, the test that was performed does provide evidence that the balance is presented fairly.

Question 2

When is an auditor most likely to use statistical sampling?

Answer 2

when risk levels are high and must be reduced to a more acceptable level

Question 3

What is meant by the term statistical sampling?

Answer 3

use of mathematical principles to..

plan a test of less than 100% of a population so that the sample will most likely be representative of the population

evaluate the results of the sample and make inferences about the general population being considered

Question 4

What is sampling risk?

Answer 4

the auditor’s conclusions may be wrong based on the sample that was examined or the sample is not representative of the whole.

Question 5

What is non-sampling risk?

Answer 5

audit tests do not uncover existing exceptions in the sample

auditor’s failure to recognize exceptions

inappropriate or ineffective audit procedures

Question 6

What is judgment sampling?

Answer 6

number of items selected for testing and evaluation of the results are based entirely on the auditor’s experience

Question 7

What are the two major types of statistical sampling?

Answer 7

Attribute sampling

Variable sampling

Question 8

When is an auditor most likely to use attribute sampling?

Answer 8

often associated with the determination of an error rate which tests efficiency and effectiveness of internal control

Question 9

how does an increase in the number of items in a population as a whole impact sample size in statistical sampling?

Answer 9

except for small populations it has no impact on sample size

Question 10

When is an auditor most likely to use sampling for variables?

Answer 10

often associated with obtaining support for a reported figure

Question 11

How does an expected deviation rate impact the sample size?

Answer 11

there is a direct relationship between the sample size and the deviation rate.

more errors expected = larger sample size

less errors expected = smaller sample size

Question 12

What is the allowance for sampling risk?

Answer 12

the difference between the sample error and the assumed maximum error rate.

Max error rate - Sample error rate = Sampling risk

Question 13

How does the maximum tolerable deviation rate impact the sample size?

Answer 13

there is an inverse relationship between the maximum tolerable deviation rate and sample size

smaller tolerable deviation rate = lager sample size

larger tolerable deviation rate = smaller sample size

Question 14

If an auditor has set the maximum tolerable deviation rate at 6% and takes a sample that shows 2% error but based on sampling methodology determines that the error rate could be as high as 5% what action should the auditor take?

Answer 14

because the maximum actual deviation rate is below the maximum tolerable deviation rate the auditor has gained evidence that this particular control activity is operating effectively and efficiently

Question 15

If an auditor has set the maximum tolerable deviation rate at 4% and takes a sample that shows 2% error but based on sampling methodology determines that the error rate could be as high as 5% what action should the auditor take?

Answer 15

because the maximum actual deviation rate is above the maximum tolerable deviation rate the auditor has failed to gained evidence that this particular control activity is operating effectively and efficiently

Question 16

How does the expected amount of misstatement impact the sample size?

Answer 16

there is a direct relationship between the sample size and the expected amount of misstatement.

higher expected amount of misstatement = larger sample size

lower expected amount of misstatement = smaller sample size

Question 17

How does the maximum tolerable amount of misstatement impact the sample size that is needed?

Answer 17

there is an inverse relationship between the maximum tolerable amount of misstatement and sample size

smaller maximum tolerable amount of misstatement = lager sample size

larger maximum tolerable amount of misstatement = smaller sample size

Question 18

In sampling, what is meant by the term stratification?

Answer 18

larger items are pulled out of a sample and are tested separately

Question 19

When is PPS sampling most likely to be used?

Answer 19

PPS places a higher significance on items with large dollar amounts. it is often used when classical variables sampling would require an especially large sample size because of the high degree of variability in the population

Question 20

How does the acceptable level of sampling risk impact the sample size needed in variable sampling?

Answer 20

there is an inverse relationship between the acceptable level of sampling risk and sample size

smaller acceptable level of sampling risk = lager sample size

larger acceptable level of sampling risk = smaller sample size

Question 21

What is the purpose of a preliminary sample in variable sampling?

Answer 21

to estimate the standard deviation, which is a measure of variability

more variable = larger sample size

less variability = smaller sample size

Question 22

How does the acceptable level of sampling risk impact the sample size in attribute sampling?

Answer 22

here is an inverse relationship between the acceptable level of sampling risk and sample size

smaller acceptable level of sampling risk = lager sample size

larger acceptable level of sampling risk = smaller sample size

Question 23

What is the advantage of using PPS sampling?

Answer 23

larger items have a greater chance of being selected

Variability does not cause a problem in the sampling

particularly effective when an auditor is testing for overstatement

Question 24

Assume a population of 5 items $250, $200, $50, $250 and $75. The auditor wants to select two invoices and determines that there should be an interval of $400 based on a zero start. Which items will be selected?

Answer 24

item 2 is the 400th dollar

item 5 is the 800th dollar

Question 25

In performing an audit test based on attribute sampling, what attributes require a larger sample size?

Answer 25

the expected deviation rate is increased

the maximum tolerable deviation rate is decreased

the acceptable level of sampling risk is decreased

Question 26

In performing an audit test based on variable sampling, what attributes require a larger sample size?

Answer 26

the estimated amount of misstatement is increased

the maximum tolerable amount of misstatement is decreased

the acceptable level of sampling risk is decreased

the estimated variability of the items in the population is increased

Question 27

What are the two primary benefits of statistical sampling?

Answer 27

the auditor uses mathematical principles to determine the number of items to be selected for the sample

allows the auditor to formulate a more sophisticated evaluation of sample results

Question 28

Is sampling normally conduced in most audits?

Answer 28

it is performed in virtually every audit due to the quantity of transactions making it appropriate and necessary

Question 29

What are the two general reasons an auditor could reach the wrong conclusion in a sampling test?

Answer 29

sampling risk

non-sampling risk