Flashcards in Audit Sampling Deck (15)
What is nonsampling risk?
Misinterpreting audit test results
What is sampling risk?
Sample not representative of population
What is Type I sampling risk?
Population ok but based on sample don't rely
Under rely on I/C and assess RMM too high
What is Type II sampling risk?
Population bad but based on sample auditor believes ok
Over rely on I/C and assess RMM too low
What is attribute sampling?
Used to estimate the rate of deviations in population
What is stop-or-go/sequential sampling?
Allows auditor to stop when sufficient data is gathered
What is discovery sampling?
Used when expected deviation rate is very low
What are 3 key factors used to determine sample size for attributes sampling?
Tolerable deviation rate - inverse to sample size
Expected deviation rate - direct to sample size
Allowable risk of assessing RMM too low - inverse to sample size
What is the upper precision limit?
Maximum rate of deviations that exist within a population
Sample deviation rate + Allowance for sampling risk = Upper precision limit
How is the sample deviation rate calculated?
Number of deviations / Sample size
What are 4 key factors to determine sample size for variables sampling?
Tolerable misstatement - inverse to sample size
Expected misstatement - direct to sample size
Allowable risk of incorrect acceptance - inverse to sample size
Standard deviation - direct to sample size
What is the definition of a misstatement?
Difference between amount, classification, or presentation of reported item that differs from GAAP
Omission of F/S element, account, or item
F/S disclosure not presented in accordance with GAAP
Omission of info required by GAAP
What are advantages of probability proportional to size sampling?
Standard deviation not needed
Stratifies sample automatically
Smaller sample if few errors expected
Start sampling w/o having entire population available
What are disadvantages of probability proportional to size sampling?
Large sample if many errors expected
Zero or negative balances require special handling
Not useful to detect understatement