AUD 4

Question 1

Variables sampling

Answer 1

Is used to calculate a best estimate of a population value with confidence intervals around the estimate. Commonly used variables sampling methods are mean-per-unit, difference estimation, and ratio estimation.

Question 2

PPS sampling

Answer 2

Utilizes dollar units for sampling

Question 3

Stratification of the population

Answer 3

Enables the auditor to separate the population into size-related classes. For example, all transactions over $50,000 may be grouped into a class.

Question 4

Increase in tolerable misstatement vs Increase in assessed level of control risk

Answer 4

Increasing tolerable misstatement decreases sample size, while increasing the assessed level of control risk increases sample size.

Question 5

Projected misstatement

Answer 5

The amount of known misstatements identified in a sample that is projected to the population from which the sample was drawn.

Question 6

Probability-proportional-to-size

Answer 6

The actual difference between the recorded amount and the audit value

Question 7

(PPS) sampling

Answer 7

Enables the auditor to directly control for the risk of incorrect acceptance by requiring the auditor to specify the desired level of that risk.

Question 8

Tainting percentage

Answer 8

[($5,000 − $1,000)/$5,000] = 80%

$6,000 × 80% = $4,800

Question 9

Primary objective of probability proportional to sample size

Answer 9

PPS sampling is most effective in detecting overstatements, since the likelihood of an item’s selection increases with the recorded magnitude of the item.

Question 10

The sample size for an attributes sampling application is determined by three factors

Answer 10

(1) risk of overreliance (related to confidence level)
(2) tolerable deviation rate (related to precision)
(3) expected population deviation rate (related to variability).