# AUD- Sampling Flashcards

What is Audit Sampling?

Taking part of a population, subjecting it to audit procedures, projecting results to a population

What are the characteristics of Statistical Sampling?

Based on formulas

Helps find an appropriate audit sample

Helps evaluate evidence obtained

Helps evaluate results and quantify Sampling Risk

What are the characteristics of Non-Statistical Sampling?

Based on human decision

Equally acceptable as Statistical Sampling

What are the characteristics of Substantive Tests?

Variables sampling

Probability proportionate to size sampling

What type of sampling are Control Tests?

Attribute Sampling

What is Sampling Risk?

Risk that your sample isn’t representative of population

Can happen even if audit is done properly

What is the risk of assessing Control Risk too high?

A risk of Control Testing - Auditor works to make Control Risk lower

More substantive tests - Sample overstates Control Risk, Leads to an under-reliance on internal control, over-testing, and overall audit inefficiency

Audit ends up being effective (correct result), but you do more work

What is the risk of assessing Control Risk too low?

A risk of Control Testing - Complement to Confidence Level

Inverse relationship to Sample Size

Higher accepted risk of assessing Control Risk too low = Smaller Sample

Lower accepted risk of assessing Control Risk too low = Larger Sample

What are the risks if the auditor concludes controls are operating effectively based on the sample and Control Risk is set too low?

Leads to higher Detection Risk - Fewer substantive tests

Sample understates Control Risk

This error leads to over-reliance on internal control, undertesting, and overall audit ineffectiveness.

Does NOT necessarily mean that the Financial Statements are materially misstated – it does mean that if there is one, you are less likely to find it

What is the risk of Incorrect Acceptance?

A risk of Substantive Testing - Auditor accepts a balance as fairly stated, when in fact it is not fairly stated

Hurts audit effectiveness

Wrong conclusion reached

Efficient, but not effective

What is the risk of Incorrect Rejection?

A risk of Substantive Testing - Auditor rejects balance as fairly stated when in fact it is fairly stated

Hurts audit efficiency

Wrong recommendations given

Effective, but not efficient

What is Non-Sampling Risk?

Risk of human (auditor) missing an error

Also called exception, error or deviation.

How does Sampling Risk compare to Non-Sampling Risk?

Sampling Risk deals with the chance that your audit sample is flawed

Non-Sampling risk deals with the chance that your human decisions/conclusions are flawed

What is Attribute Sampling?

Looking at Control Procedures - Were invoices approved when paid?

Errors are stated in terms of %, not dollar amounts

For example, 5 invoices out of 100 were not properly paid. Error rate is 5%

Hint: If you see Error Rate on the Exam, they are referring to Attribute Sampling.

How do you determine if Control Procedures are operating properly or not operating properly?

Control Procedures are either operating properly or they are not operating properly – based on Error Rate and the tolerance you have for errors