A5 (1) - Audit Sampling Flashcards Preview

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Flashcards in A5 (1) - Audit Sampling Deck (30):
0

Statistical Sampling - Advantages

a. Measure the sufficiency of the audit evidence obtained.

b. Provide an objective basis for quantitatively evaluating sample results.

c. Design an efficient sample.

d. Quantify sampling risk so as to limit risk to an acceptable level.

1

Situations where Sampling May Not Apply

1- Risk assessment procedures
2- Tests of automated application controls
3- Analyses of security and access controls
4- operation of the control environment

2

Risk of Incorrect Acceptance in Substantive Testing

Sample results fail to identify an existing material misstatement).

3

Risk of Incorrect Rejection in Substantive Testing

Sample results mistakenly indicate a material misstatement).

4

Risk of Assessing Control Risk Too Low

Sample results indicate a lower deviation rate than actually exists in the population).

5

Risk of Assessing Control Risk Too High

Sample results indicate a greater deviation rate than actually exists in the population

6

Summary Charts

See the working paper file

7

Tolerable Deviation Rate

maximum rate of deviation from a prescribed procedure without modifying planned reliance on internal control.

8

Deviation Rate in the sample

Auditor's best estimate of the deviation rate in
the population

9

Attribute sample procedures

1- Define the Objective of the Test
2- Define the Population
3- Define the Sampling Unit
4- Define the Attributes of Interest
5- Determine the Sample Size
6- Select the Sample
7- Evaluate the Sample Results
8- Form Conclusions about the Internal Control Tested
9- Document the Sampling Procedure

10

Upper (maximum) deviation rate

Sum of the sample deviation rate and the allowance for sampling risk

11

If the upper deviation rate is less than or equal to the auditor's tolerable deviation rate,

Rely on the control

12

If the upper deviation rate exceeds the auditor's tolerable deviation rate,

NOT rely on the control. Instead,
1- test compliance with some other internal control
2-Modify the nature, extent, or timing of related substantive tests

13

OTHER ATTRIBUTE SAMPLING MODELS - Discovery Sampling

Discovery sampling is a special type of attribute sampling appropriate when the auditor believes the population deviation rate is zero or near zero. (e.g., fraud).

14

OTHER ATTRIBUTE SAMPLING MODELS - Stop-or-Go Sampling

Allowing the auditor to stop an audit test before completing all steps. It is used when few errors are expected in the population

15

SAMPLING IN SUBSTANTIVE TESTS: VARIABLES SAMPLING

Statistical sampling method used to estimate the numerical measurement of a population, such as a dollar value (

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Tolerable Misstatement

Maximum monetary misstatement in the related account balance or class of transactions that the auditor is willing to accept

17

Projected Misstatement

projects the misstatement results of the sample

18

If the total projected misstatement is less than the tolerable misstatement for the account balance or class of transactions

the auditor should consider the risk that such a result might be obtained even though the true monetary misstatement for the population exceeds tolerable misstatement.

19

If the total projected misstatement is close to the tolerable misstatement

There is an unacceptably high risk that the actual error
In the population exceeds the tolerable misstatement

20

Variables Sampling Plans - (1) Mean-per-Unit Estimation (MPU)

Estimate =average sample value x number of items in population)

very sensitive to the variability of the population

21

Variables Sampling Plans - (2) Ratio Estimation

Audited (correct) values of items to their book values to project.

Require smaller sample sizes than the MPU method; however, they are only effective when the auditor expects large numbers of over- and understatements

22

Variables Sampling Plans - (3) Difference Estimation

Average difference between the audited (correct) values of items and their book values to project the actual population value.

23

Sampling procedures

1- Define the Objective of the Test - accounts receivable
2- Define the Population -5,000 accounts by $4,500K.
3- Define the Sampling Unit - 5,000 accounts
4- Determine the Sample Size
5- Select the Sample
6- Evaluate the Sample Results
7- Form Conclusions
8- Document the Sampling

24

Sample size will increase/decrease by changing any of the items in the formula

A. Sample size will increase as the following increase
(a) Expected misstatement
(b) Standard deviation (population variability)
(c) Assessed level of risk

B. Sample size will decrease as the following increase (inverse relationship):
(a) Tolerable misstatement
(b) Acceptable level of risk

25

Difference between Book value and audited value

Book Value = Total sample value (e.g..total 200 account receivables .)

Audit value = Total audited accounts within the sample

26

PPS Sampling

Technique where the sampling unit is defined as an individual dollar in a population.

27

Sample size using PPS method

Interval = Tolerable misstatement / Reliability factor

Sample size = Recorded amount of population / Sampling interval

Reliability factors correspond to the risk of incorrect acceptance and are generally obtained from a table

28

Sample Selection using PPS

A random number between 1 and the sampling interval (inclusive) is selected. This number is the random start, and it will also determine the first item selected. Systematic selection is then used to select the remainder of the sample. The recorded amounts of the logical units (e.g., account balances) throughout the population are added and individual dollars are selected based on the interval. Once a dollar in an account is selected, that entire account
will be audited.

29

Evaluation of Sample Results

(1). If no errors are found in the sample, the error projection is zero and the allowance for sampling risk would not exceed the auditor's tolerable error.

(2). If, on the other hand, errors are found in an account the errors need to be projected to the interval