Flashcards in Deck 17 Deck (20):

1

## PPS sampling

### Method designed to estimate overstatement errors; technique used to estimate the dollar amount of error in a population

2

## Incorrect acceptance

### The risk that the sample supports the conclusion that the recorded account balance is not materially misstated when in fact it is materially misstated

3

## A principal advantage of statistical methods of attribute sampling over nonstatistical methods is:

### That they provide a scientific basis for planning the sample size

4

## Sampling interval (PPS sampling)

### Recorded amount of population/sample size

5

## Standard deviation

### Measure of the variability of a frequency distribution about its mean

6

## Statistical concept of precision

### describe the auditor's evaluation of sampling results by calculating the possible error in either direction

7

## Inputs for PPS sampling include:

### Tolerable misstatement, risk of incorrect acceptance, and recorded amount of population being sampled

8

## Tolerable deviation rate (Mistakes)

### How many mistakes can we tolerate before we can say this control is not operating effectively

9

## Mean-per-unit estimation

###
- Variables sampling plan that uses the average value of the items in the sample to estimate the true population

- sensitive to variability so stratify population

10

## Ratio estimation

### - Variables sampling plan that uses the ratio of the audited values of items to their book values to project the true population value

11

## Difference estimation

### variables sampling plan that uses the average difference between the audited values of items and their book values to project the actual population value

12

## Advantages of PPS sampling:

### Automatically stratifies the sample (emphasizes larger items )

13

## Disadvantages of PPS sampling:

### Zero balances, negative balances, and understated balances generally require special considerations

14

## Sampling interval (from book) =

### tolerable misstatement/reliability factor

15

## Sample size (from book) =

### recorded amount of the population/sampling interval

16

## When does a significant deficiency exist?

### Exists for weaknesses that are important enough to merit the attention of those responsible for financial reporting

17

## When does a material weakness exist?

### Exists when there is a reasonable possibility of material misstatement

18

## Control deficiency

###
- Least severe

- Design or operation of a control does not allow management or employees to prevent, or detect and correct misstatements on a timely basis

19

## Material weakness

###
- The worst

- Deficiency, or a combination of deficiencies, where there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis

20