sampling

Question 1

Sampling Risk

Answer 1

The risk of drawing the wrong conclusion based on a sample that is not representative of the population.

Question 2

Nonsampling Risk (misstatement)

Answer 2

The risk that human error will lead to drawing the wrong conclusion.

Question 3

Type I Sampling Error (Alpha)

Answer 3

Population is okay but based on the sample, don’t rely.
Under-rely on internal control = assess RMM ↑
Incorrectly reject an account balance for substantive testing purposes
Less efficient audit.

Question 3

Type I Sampling Error (Alpha)

Answer 3

Population is okay but based on the sample, don’t rely.
Under-rely on internal control = assess RMM ↑
Incorrectly reject an account balance for substantive testing purposes
Less efficient audit.

Question 4

Type II Sampling Error (Beta)

Answer 4

Population is bad but based on the sample, the auditor believes everything is correct.
Over-rely on internal control = assess RMM ↓
Incorrectly accept an account balance for substantive testing purposes
Less effective audit.

Question 5

Statistical Sampling

Answer 5

A method of sampling under which formulae are applied to determine sample size and to interpret sample results by measuring risk, requiring the auditor’s judgment in determining the level of risk that is acceptable.

Question 5

Statistical Sampling

Answer 5

A method of sampling under which formulae are applied to determine sample size and to interpret sample results by measuring risk, requiring the auditor’s judgment in determining the level of risk that is acceptable.

Question 6

Nonstatistical Sampling

Answer 6

Also referred to as “judgmental sampling,” a method of sampling under which the auditor applies judgment to determine sample size and to interpret sample results.

Question 7

Random-Number Sampling

Answer 7

Selecting items for examination at random using random number tables or software such that any item within a population has an equal chance of being included in a sample.

Question 8

Systematic Sampling

Answer 8

Selecting items for a sample by dividing the number of items in the population by the sample size and, using a random starting point, each subsequent “nth” item is selected.

Question 9

Haphazard Sampling

Answer 9

A sample consisting of units selected without any conscious bias, assuming a random distribution of the population.

Question 10

Haphazard Sampling

Answer 10

A sample consisting of units selected without any conscious bias, assuming a random distribution of the population.

Question 11

Block Sampling (or Cluster Sampling)

Answer 11

A sample consisting of contiguous units; e.g., a selection of three blocks of ten vouchers each. Note: While this method eases sample selection, its major disadvantage is that the samples selected may not be representative, and thus is regarded as the least desirable method of sampling.

Question 12

Stratified Sampling

Answer 12

Dividing a population into smaller segments and sampling each as if it was a distinct population, increasing the efficiency of a sample.

Question 13

Attribute Sampling

Answer 13

A method of sampling, often applied to tests of controls, in which the frequency with which a characteristic appears in a population, such as an exception where the auditor is trying to determine how many invoices are not properly authorized.

Question 14

Variable Estimation Sampling

Answer 14

method of sampling, generally applied to tests of balances (substantive testing), in which the auditor estimates the value of a population on the basis of the value of a sample.

Question 15

Tolerable Deviation Rate

Answer 15

The frequency with which an error can appear in a population without the auditor concluding that the control being tested is not reliable.

Question 16

Tolerable Deviation Rate

Answer 16

The frequency with which an error can appear in a population without the auditor concluding that the control being tested is not reliable.

Question 17

Expected Deviation Rate

Answer 17

The frequency with which the auditor expects an error to occur in a population.

Question 18

Tolerable Misstatement

Answer 18

The largest error that can occur in a population without the auditor concluding that the balance is materially misstated.

Question 19

Tolerable Misstatement

Answer 19

The largest error that can occur in a population without the auditor concluding that the balance is materially misstated.

Question 20

Expected Misstatement

Answer 20

The amount by which the auditor expects a balance to be misstated.

Question 21

Probability Proportional to Size Sampling (PPS)

Answer 21

A sampling plan under which items exceeding a certain dollar amount are always included in a sample and, for remaining items, the greater the amount, the greater the likelihood of being included in the sample. Also referred to as Dollar unit sampling (DUS) or Cumulative monetary amount sampling (CMA).

Question 22

Probability Proportional to Size Sampling (PPS)

Answer 22

A sampling plan under which items exceeding a certain dollar amount are always included in a sample and, for remaining items, the greater the amount, the greater the likelihood of being included in the sample. Also referred to as Dollar unit sampling (DUS) or Cumulative monetary amount sampling (CMA).

Question 23

Mean-Per-Unit Estimation

Answer 23

The average value of the items in the sample is multiplied by the number of items in the population to estimate the total numerical value of the population; e.g., $42 + $24 + $27 = $93 / 3 = $31. With a mean-per-unit of $31, a population of 100 invoices is estimated at $31 × 100 = $3,100.

Question 24

Difference Estimation

Answer 24

The auditor determines the average dollar amount by which the audited amounts exceed the book amounts in the sample (or vice versa), and assumes this average difference applies to the entire population, so that the difference per item is multiplied by the number of items in the population, and the result is added to (or subtracted from) the total book amount; e.g., $2 + $4 + $0 = $6 / 3 = $2. With an average excess of audited over book amount of $2, a population of 100 invoices should be increased by $2 × 100 = $200, estimating the population at $3,000 account balance + $200 difference = $3,200.

Question 25

Ratio Estimation

Answer 25

The auditor determines the ratio of the audited amounts to the book amounts in the sample (audited amount divided by book amount), and then multiplies the total book amount by this ratio; e.g., 1.05 + 1.20 + 1.00 = 3.25 / 3 = 1.08 (rounded). With an average ratio of audited amount to book amount of 1.08, the population is estimated to have a value of $3,000 account balance × 1.08 = $3,240.

Question 26

Projected Misstatement (or Projected Error)

Answer 26

The misstatement in a document is calculated as a percentage of the recorded amount, then this percentage is applied to the interval. The projected misstatement is compared with the tolerable misstatement to determine whether to accept the account balance as being materially correct.