Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

Audit Test 2 > Chapter 15 Slides > Flashcards

Chapter 15 Slides Flashcards

(67 cards)

Start Studying
1
Q

representative sample

A

a sample in which the characteristics in the sample are approximately the same as those of the population

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

auditors can’t know if their sample is representative, but they can increase the likelihood by using care in… (3)

A
  1. designing the sampling process
  2. sample selection
  3. evaluation of sample results
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

all samples have two types of risks/the risk of two types of errors

A

sampling and nonsampling

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

sampling risk

A

the risk that the sample does not represent the population; eliminated if sample is 100% (too costly)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

2 ways to control sampling risk

A
  1. increase sample size (inverse relationship)
  2. sample selection method (better when allows for statistical extrapolation)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

nonsampling risk

A

risk that the auditor reaches an incorrect conclusion for any reason not related to sampling risk

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

common reasons for nonsampling risk (2)

A
  1. auditor’s failure to recognize exceptions (distracted, fatigued, bored, mistake)
  2. ineffective or not appropriate audit procedures (trace vs. vouch, use of analytical review when should sample)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

2 ways to combat nonsampling risk

A
  1. proper training on audit testing
  2. proper supervision and review
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Type I Error

A

false rejection; auditor concludes that IC are ineffective when they are effective (qualified/adverse opinion when actually fairly stated)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Type II Error

A

false acceptance; auditor concludes ICs are effective when they’re ineffective (overreliance on IC, control risk too low) (unmodified opinion when actually misstated)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

3 phases in both statistical and nonstatistical sampling

A
  1. plan the sample
  2. select the sample and perform the tests
  3. evaluate the results (to consider acceptability of IC/Trx of population)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

statistical sampling

A

applies mathematical rules so the auditor can quantify sampling risk in planning the sample (step 1) and evaluating the results (step 3)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

2 reasons to use statistical sampling

A
  1. allows for quantifying sampling risk in the planning stage
  2. allows for evaluating the results statistically
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

95% confidence level means __ sampling risk (ARO)

A

5%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

nonstatistical sampling

A

doesn’t quantify sampling risk but can provide effective results in audits when properly designed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

nonstatistical/nonprobabilistic sampling is based on the __ __ rather than a statistical method of sample selection

A

auditor’s judgment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

two types of nonprobabilistic sampling

A

haphazard sampling, block selection

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

3 probabilistic sample selection methods

A
  1. simple random sample selection
  2. systematic sample selection
  3. monetary unit sampling/probability proportional to size sample selection
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

probabilistic sample selection

A

auditor randomly selects items such that each item has a known probability of being included in the sample

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

simple random sample selection

A

a. random number generator
b. with (rare) or without replacement
c. results are not sequential, need to order them
d. i.e., sales invoices or monetary units

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

simple random sample selection

A

every possible combination of population items has an equal chance of being included in the sample

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

3 ways auditors often generate random numbers

A
  1. electronic spreadsheets
  2. random number generators
  3. generalized audit software
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

systematic sample selection

A
  1. determine total population, divide by sample size = interval needed
  2. random number within interval to begin
  3. advantage: results are sequential
  4. weakness: once interval is set, might miss a consistent error/fraud
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

probability proportional to size (PPS) sample selection

A

divide population into subpopulations (dollar size) taking larger samples from larger dollar population (emphasis on large dollar amounts)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
haphazard sample selection
select blindly--all items should have equal chance (but hard not to have bias in selection)
26
objective of audit sampling
ensure all items have equal chance of selection
27
block sample selection
1. auditor selects first item in a block then remainder of block in sequence 2. divide needed sample by blocks of 10 or 5 items (rarely used in modern auditing because references cannot be made beyond block) 3. select multiple blocks to minimize sampling risk
28
exception rate (occurrence rate)
1. percentage of items in a population with an attribute of interest 2. auditor's estimate for IC deviations and monetary misstatement amounts
29
attribute
1. characteristic of interest in a population 2. IC steps that support an audit objective within a cycle
30
3 types of exceptions in accounting data
1. deviations from the client's established controls 2. monetary misstatements in populations of transaction data 3. monetary misstatements in populations of account balance details
31
CUER
upper limited of estimated population exception rate; auditor focuses on when performing TOCs and STOTs
32
the auditor is not interested in the width of the CI, but rather the __ __ of the possible error/interval estimate
upper limit (CUER)
33
auditor estimates that the __ __ __ is the best estimate of the population exception rate
sample exception rate
34
the difference between the sample and population exceptions are not the same
sampling error
35
sampling risk
reliability of the estimate and the sampling error
36
TER relationship with testing
inverse: lower TER = more testing/significant balances
37
ARO relationship to testing
(high, medium, low) inverse: if high ARO, less testing/samples
38
if not relying on IC, ARO would be high and IC risk would be
high (direct relationship)
39
EPER relationship to testing
direct: lower EPER = less testing/significant balances
40
EPER should be lower than
TER
41
risk that auditor concludes IC is effective when it's not; exception rate is higher than TER
ARO
42
auditor uses __ __ to decide TER for each attribute, based on where exceptions would materially misstate financials
professional judgment
43
low ARO leads to increased sample size and __ substantive tests of balances
reduced
44
high ARO, controls are less important, reduced sample size, __ substantive tests of balances
increase
45
determining EPER
use previous year's audit results to estimate
46
determining sample size with nonstatistical
1. judgmental based on last year's audit, using non-statistical methods 2. sample size could change after testing results
47
determining sample size with statistical
1. use tables for attributes sampling (ARO of 5% or 10%) 2. use PER, TER, cross tab to sample size
48
must state the objectives of the audit test in terms of
the transaction cycle being tested
49
objectives (2) of audit test
1. test operating effectiveness of controls 2. determine whether trx contain monetary misstatements
50
audit sampling applies when
the auditor plans to reach conclusions about a population based on a sample
51
sampling unit is defined based on (2)
the population and the sample selection method
52
risk of overreliance impacts the __ of the audit
effectiveness
53
why is it called the initial sample size?
exceptions in initial sample must be evaluated before an auditor can decide if the sample is sufficient to achieve the objectives of the test
54
SER =
actual exceptions / actual sample size
55
when SER > EPER,
sample results do not support preliminary assessed risk
56
calculated allowance for sampling risk =
TER - SER
57
if SER < EPER,
sample does not indicate any significant problems
58
SER > EPER
results are unacceptable
59
4 courses of action if results are unacceptable (if there are control deficiencies)
1. revise TER or ARO (hard to defend) 2. expand sample size (bc not representative?) 3. revise assessed control risk 4. communicate with audit committee or management (in all cases)
60
nonstatistical: if SER>TER
control unacceptable
61
nonstatistical: if TER-SER is near EPER (1-3%)
IC is a risk, likely deficient
62
auditor should retain adequate documentation of (4)
1. procedures performed 2. methods used to select sample and perform tests 3. results of tests 4. conclusions reached
63
conclusions of TOCs and STOTs will determine
remainder of audit evidence that needs to be obtained
64
most common statistical sampling method for TOCs and STOTs
attributes sampling
65
differences between statistical attributes sampling and nonstatistical sampling (6)
a. calculation of initial sample sizes are developed from statistical probability distributions b. calculation of estimated upper exception rates use statistical probability distributions 7. ARO quantified in statistical 9. initial sample size from tables or audit software 10. probabilistic methods must be used for statistical sampling 12. auditor calculates CUER using statistical formulas
66
sampling distributions
frequency distribution of results of all possible samples of a specified size that could be obtained from a population containing some specific characteristics
67
statistical: if CUER>TER
internal control problem

Audit Test 2 (7 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions