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Flashcards in Audit Sampling Deck (29):
1

An auditor sets a tolerable amount of misstatement for an item at $30,000 and performs a sampling for variables test. Based on the preliminary judgment, the population (an account balance) is estimated at a total value of $900,000. However, the client reports this figure at $922,000. What is the impact of this on the audit sample?

Because the difference between the projected balance of the population and the client's reported figure is less than the auditor's maximum tolerable amount of misstatement, the test that was performed does provide evidence that the balance is presented fairly.

2

When is an auditor most likely to use statistical sampling?

when risk levels are high and must be reduced to a more acceptable level

3

What is meant by the term statistical sampling?

use of mathematical principles to..

plan a test of less than 100% of a population so that the sample will most likely be representative of the population

evaluate the results of the sample and make inferences about the general population being considered

4

What is sampling risk?

the auditor's conclusions may be wrong based on the sample that was examined or the sample is not representative of the whole.

5

What is non-sampling risk?

audit tests do not uncover existing exceptions in the sample

auditor's failure to recognize exceptions

inappropriate or ineffective audit procedures

6

What is judgment sampling?

number of items selected for testing and evaluation of the results are based entirely on the auditor's experience

7

What are the two major types of statistical sampling?

Attribute sampling

Variable sampling

8

When is an auditor most likely to use attribute sampling?

often associated with the determination of an error rate which tests efficiency and effectiveness of internal control

9

how does an increase in the number of items in a population as a whole impact sample size in statistical sampling?

except for small populations it has no impact on sample size

10

When is an auditor most likely to use sampling for variables?

often associated with obtaining support for a reported figure

11

How does an expected deviation rate impact the sample size?

there is a direct relationship between the sample size and the deviation rate.

more errors expected = larger sample size

less errors expected = smaller sample size

12

What is the allowance for sampling risk?

the difference between the sample error and the assumed maximum error rate.

Max error rate - Sample error rate = Sampling risk

13

How does the maximum tolerable deviation rate impact the sample size?

there is an inverse relationship between the maximum tolerable deviation rate and sample size

smaller tolerable deviation rate = lager sample size

larger tolerable deviation rate = smaller sample size

14

If an auditor has set the maximum tolerable deviation rate at 6% and takes a sample that shows 2% error but based on sampling methodology determines that the error rate could be as high as 5% what action should the auditor take?

because the maximum actual deviation rate is below the maximum tolerable deviation rate the auditor has gained evidence that this particular control activity is operating effectively and efficiently

15

If an auditor has set the maximum tolerable deviation rate at 4% and takes a sample that shows 2% error but based on sampling methodology determines that the error rate could be as high as 5% what action should the auditor take?

because the maximum actual deviation rate is above the maximum tolerable deviation rate the auditor has failed to gained evidence that this particular control activity is operating effectively and efficiently

16

How does the expected amount of misstatement impact the sample size?

there is a direct relationship between the sample size and the expected amount of misstatement.

higher expected amount of misstatement = larger sample size

lower expected amount of misstatement = smaller sample size

17

How does the maximum tolerable amount of misstatement impact the sample size that is needed?

there is an inverse relationship between the maximum tolerable amount of misstatement and sample size

smaller maximum tolerable amount of misstatement = lager sample size

larger maximum tolerable amount of misstatement = smaller sample size

18

In sampling, what is meant by the term stratification?

larger items are pulled out of a sample and are tested separately

19

When is PPS sampling most likely to be used?

PPS places a higher significance on items with large dollar amounts. it is often used when classical variables sampling would require an especially large sample size because of the high degree of variability in the population

20

How does the acceptable level of sampling risk impact the sample size needed in variable sampling?

there is an inverse relationship between the acceptable level of sampling risk and sample size

smaller acceptable level of sampling risk = lager sample size

larger acceptable level of sampling risk = smaller sample size

21

What is the purpose of a preliminary sample in variable sampling?

to estimate the standard deviation, which is a measure of variability

more variable = larger sample size

less variability = smaller sample size

22

How does the acceptable level of sampling risk impact the sample size in attribute sampling?

here is an inverse relationship between the acceptable level of sampling risk and sample size

smaller acceptable level of sampling risk = lager sample size

larger acceptable level of sampling risk = smaller sample size

23

What is the advantage of using PPS sampling?

larger items have a greater chance of being selected

Variability does not cause a problem in the sampling

particularly effective when an auditor is testing for overstatement

24

Assume a population of 5 items $250, $200, $50, $250 and $75. The auditor wants to select two invoices and determines that there should be an interval of $400 based on a zero start. Which items will be selected?

item 2 is the 400th dollar

item 5 is the 800th dollar

25

In performing an audit test based on attribute sampling, what attributes require a larger sample size?

the expected deviation rate is increased

the maximum tolerable deviation rate is decreased

the acceptable level of sampling risk is decreased

26

In performing an audit test based on variable sampling, what attributes require a larger sample size?

the estimated amount of misstatement is increased

the maximum tolerable amount of misstatement is decreased

the acceptable level of sampling risk is decreased

the estimated variability of the items in the population is increased

27

What are the two primary benefits of statistical sampling?

the auditor uses mathematical principles to determine the number of items to be selected for the sample

allows the auditor to formulate a more sophisticated evaluation of sample results

28

Is sampling normally conduced in most audits?

it is performed in virtually every audit due to the quantity of transactions making it appropriate and necessary

29

What are the two general reasons an auditor could reach the wrong conclusion in a sampling test?

sampling risk

non-sampling risk