Chapter 11

Question 1

Audit sampling is selective examination of data used when

Answer 1

1. less than 100% of the items in the population are audited

2. each item in the population could be selected as part of the sample

Question 2

items in audit sampling can also be referred to

Answer 2

sampling unit

Question 3

def: population

Answer 3

a set of accounts or transactions from which the auditor wishes to draw a conclusion

Question 4

def: representative sample

Answer 4

a sample with the same characteristics as those of the population

Question 5

the risk of incorrect conclusion could be due to

Answer 5

sampling error or non-sampling error

Question 6

incorrect conclusion due to sampling error is called

Answer 6

sampling risk

Question 7

incorrect conclusion due to non-sampling error is called

Answer 7

non-sampling risk

Question 8

def: sampling risk

Answer 8

inappropriate conclusion because sample is not representative of population

Question 9

def: non-sampling risk

Answer 9

incorrect conclusion due to failure to recognize exceptions and/or inappropriate audit procedures

Question 10

using sampling as auditors means dealing with three aspects

Answer 10

1. planning the sample
2. select sample and perform test
3. evaluate the results

Question 11

def: statistical sampling

Answer 11

apply mathematical rules so that auditors can measure sampling risk in planning and evaluating steps

Question 12

def: non-statistical sampling

Answer 12

use professional judgment to select sample items that will provide most useful info and reach conclusions and populations

Question 13

sample selection may be

Answer 13

probabilistic or non-probabilistic

Question 14

def: probabilistic sample selection

Answer 14

auditor randomly selects items such that each population item has a known probability of being included

Question 15

def: non-probabilistic sample selection

Answer 15

auditor selects sample items using professional judgment rather than probabilistic methods

Question 16

examples of non-probabilistic sample selection methods (3)

Answer 16

1. directed
2. block
3. haphazard

Question 17

which sample selection method is most used

Answer 17

directed sample selection

Question 18

examples of probabilistic sample selection methods (3)

Answer 18

1. simple random
2. systematic
3. probability proportionate to size

Question 19

which method is both non-probabilistic and probabilistic?

Answer 19

stratified (layers of data) sample selection

Question 20

def: directed sample selection

Answer 20

each item in the sample is selected on the basis of some judgment criteria

Question 21

def: block sample selection

Answer 21

auditors select the first item in a block and the remainder of the block is chosen in sequence

Question 22

def: haphazard sample selection

Answer 22

items are chosen without regard to their size, source or other distinguishing characteristics

Question 23

def: simple random sample

Answer 23

sample in which every possible combination of population items has equal chance of being selected

Question 24

def: systematic selection

Answer 24

auditor calculates an interval and selects the items for the sample based on size of the interval and randomly selected number between 0-sample size

Question 25

def: stratified sampling

Answer 25

method of sampling in which all elements in total population are divided into 2+ subpopulations that are independently tested

Question 26

main differences between test of controls, substantive tests of transactions and tests of details of balance is

Answer 26

in what the auditor wants to measure

Question 27

what do test of controls measure?

Answer 27

the operating effectiveness of controls

Question 28

what do substantive tests of transactions measure?

Answer 28

monetary correctness of individual transactions in accounting system

Question 29

if substantive test of transactions is part of dual test what does it measure?

Answer 29

the operating effectiveness of controls

Question 30

what do substantive test of balances measure?

Answer 30

whether the dollar amounts of account balances are materially misstated

Question 31

which method of sampling for tests of controls?

Answer 31

attribute sampling

Question 32

def: attribute sampling

Answer 32

a statistical, probabilistic method of sample evaluation that results in an estimate of the proportion of items in a population containing a characteristic or attribute of interest

Question 33

steps involved in attribute sampling (7)

Answer 33

1. determine test objective 2. population characteristics 3. initial sample size 4. select sample and perform audit procedures 5. evaluate sample results 6. conclude acceptability of pop 7. communicate with audit committee or management

Question 34

what method is most popular for control testing

Answer 34

non-statistical sampling

Question 35

a key drawback of non-statistical sampling is that the auditor cannot

Answer 35

quantify sampling risk + auditor bias in sample selection

Question 36

control testing measures whether

Answer 36

the controls are effective

Question 37

substantive tests are used to measure whether the

Answer 37

dollar amounts of account balances are materially misstated

Question 38

steps in the audit sampling for tests of details of balances (8)

Answer 38

1. determine if audit sampling applies 2. the test objective 3. population characteristics 4. define misstatement conditions 5. define the population 6. define the sampling unit 7. determine initial sample size 8. select sample and perform audit procedures

Question 39

def: tolerable misstatement

Answer 39

application of performance materiality to a particular sampling procedure

Question 40

the planned sample size _____ as the amount of misstatements expected approaches tolerable misstatement

Answer 40

increases

Question 41

ARIA is

Answer 41

acceptable risk of incorrect acceptance

Question 42

def: ARIA

Answer 42

the risk that the auditor is willing to take of accepting a balance as correct when the true misstatement in the balance is greater than tolerable misstatement

Question 43

how to evaluate sample results from non-statistical sampling for substantive

Answer 43

1. qualitative evaluation 2. request client to correct known misstatements 3. qualitative assessment

Question 44

how to conclude on acceptability of population?

Answer 44

1. take no action until tests of other audit areas are completed 2. perform expanded audit tests in specific areas 3. increase the sample size 4. adjust the account balance 5. refuse to give an unqualified opinion

Question 45

auditor must retain adequate records of

Answer 45

1. procedure performed 2. methods used to select sample and perform test 3. results found 4. conclusion reached

Question 46

documentation is need for both

Answer 46

statistical and non-statistical sampling

Question 47

why is documentation needed for both?

Answer 47

to evaluate the combined results of all tests