A5 (1) - Audit Sampling

Question 0

Situations where Sampling May Not Apply

Answer 0

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

Question 1

Statistical Sampling - Advantages

Answer 1

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.

Question 2

Risk of Incorrect Acceptance in Substantive Testing

Answer 2

Sample results fail to identify an existing material misstatement).

Question 3

Risk of Incorrect Rejection in Substantive Testing

Answer 3

Sample results mistakenly indicate a material misstatement).

Question 4

Risk of Assessing Control Risk Too Low

Answer 4

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

Question 5

Risk of Assessing Control Risk Too High

Answer 5

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

Question 6

Summary Charts

Answer 6

See the working paper file

Question 7

Tolerable Deviation Rate

Answer 7

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

Question 8

Deviation Rate in the sample

Answer 8

Auditor’s best estimate of the deviation rate in

the population

Question 9

Attribute sample procedures

Answer 9

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

Question 10

Upper (maximum) deviation rate

Answer 10

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

Question 11

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

Answer 11

Rely on the control

Question 12

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

Answer 12

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

Question 13

OTHER ATTRIBUTE SAMPLING MODELS - Discovery Sampling

Answer 13

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).

Question 14

OTHER ATTRIBUTE SAMPLING MODELS - Stop-or-Go Sampling

Answer 14

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

Question 15

SAMPLING IN SUBSTANTIVE TESTS: VARIABLES SAMPLING

Answer 15

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

Question 16

Tolerable Misstatement

Answer 16

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

Question 17

Projected Misstatement

Answer 17

projects the misstatement results of the sample

Question 18

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

Answer 18

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.

Question 19

If the total projected misstatement is close to the tolerable misstatement

Answer 19

There is an unacceptably high risk that the actual error

In the population exceeds the tolerable misstatement

Question 20

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

Answer 20

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

very sensitive to the variability of the population

Question 21

Variables Sampling Plans - (2) Ratio Estimation

Answer 21

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

Question 22

Variables Sampling Plans - (3) Difference Estimation

Answer 22

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

Question 23

Sampling procedures

Answer 23

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

Question 24

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

Answer 24

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

Question 25

Difference between Book value and audited value

Answer 25

Book Value = Total sample value (e.g..total 200 account receivables .) Audit value = Total audited accounts within the sample

Question 26

PPS Sampling

Answer 26

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

Question 27

Sample size using PPS method

Answer 27

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

Question 28

Sample Selection using PPS

Answer 28

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.

Question 29

Evaluation of Sample Results

Answer 29

(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