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ACCT 425 > Lec 14 Q3 > Flashcards

Lec 14 Q3 Flashcards

1
Q

what is the definition of audit sampling

A

application of audit procedure to less than 100% of the items within an account balance population

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2
Q

what is the purpose of sampling

A

to evaluate characteristics of the sample and project it onto the population

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3
Q

N, E and T are aspects of audit procedure - what are they are what do they stand for

A

nature - the techniques used
extent - the amount of tests done
timing - point in audit in which the procedures are to be performed

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4
Q

for internal controls doe you sample from accounts or classes of trans

A

classes of transactions

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5
Q

is sampling for IC really sampling?

A

not really because you take 2-3 I/C procedure and do a walkthrough

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6
Q

what is attribute sampling

A

looking at the documents of physical units such as sales documents

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6
Q

what sort of sampling is the effectiveness of control procedures based on

A

attribute sampling

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6
Q

when you sample for substantive testing, do you sample class or accounts

A

accounts, more specifically A or L

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6
Q

what is sampling risk

A

the risk that a conclusion drawn from sample is different from the actual characteristics of the sample

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6
Q

what types of sampling does a balance/substantive audit use

A

variable sampling and attribute sampling of monetary units

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7
Q

assuming all else if fine, what might cause sample risk

A

sample that is chosen is wrong

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8
Q

can sample risk ever be 0

A

no, it can never be 0 unless the entire population is is tested

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9
Q

what are the two types of audit sampling

A

statistical and non-statistical

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10
Q

what is statistical sampling

A

the use of probability to select and evaluate the results of a sample

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11
Q

what are two features of statistical sampling

A
  • risks can be quantified through a formula
  • they are more expensive to and require use of CATs
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12
Q

what is non-statistical sampling

A

sampling based on professional judgement

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13
Q

can sr be evaluated in non-stat

A

no, there is no formula to evaluate samp risk in non-stat

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14
Q

when should you use non-statistical sample

A

when you have good professional judgement and knowledge of the industry and business

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15
Q

which is cheaper, stat or non-stat

A

non-stat thus it is used to balance the cost between the two sampling methods

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16
Q

can both stat and non-stat be used for evidence and cas?

A

yes, both can provide sufficient appropriate evidence and both are allowed by cas, individually or in combination

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17
Q

when should you use non-statistical

A
  • when there is a small population (costly and inconvenient to do statistical)
  • high percentage of the population are individual accounts with high value and risk items
  • accounts’ records for entire population are difficult to access
  • records are maintained manually
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18
Q

what are the three non-statistical sampling methods

A

haphazard method, block/cluster sampling, significant transactions sampling

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19
Q

what is the haphazard method of non-s sampling and give an example

A

items selected manually to draw a representative sample.
e.g. pick documents randomly from a box

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20
Q

what i/c objective does this haphazard method test

A

objective of validity

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21
what is the block/cluster method and give an example
select consecutive sequences of transactions by time, location, # in the A/R cycle when you trace to ensure you do not miss anything
22
what i/c objective does block method test
completeness
23
what is significant transaction sampling
select items only above or specifically below a materiality limit
24
can result from significant transactions be be projected
no, they cannot be projected because since the sample is only a particular transaction(s) thus it is not representative
25
do both stat and non-stat require prof judgement
yes
26
when is professional judgement required in stat sampling
- tolerable deviation rate - confidence level
27
what professional judgement is requited in non-stat sampling
professional judgement to draw conclusions about the population
28
what is representative sampling and what is an example
characteristics of the sample that are reflective of the population e.g. if the population and the sample both have a 4% rate of error, sample is representative
29
does each unit have a chance of selection in representative sampling
yes, each unit has equal chances of selection
30
what are 2 methods to obtain a representative sample
- unrestricted random selection - systematic random - meaning first was chose randomly, but the rest were chose by procedure; relies on some sort of ordering - most likely for block sampling
31
what is a sampling unit composed of
test of controls and details
32
what does test of controls involve
looking at physical units, invoices, shipping documents, POs
33
what does test of details involve
you are looking at the balances - dollar amount
34
what are the 7 steps to assessing control risk
- specifying audit objectives - define deviation conditions - define population - determine sample size - select the sample - perform control test procedures - evaluate the evidence
35
what are the first 3 steps in the CR assessment related to and what do they ensure
they are related to problem recognition ensuring that controls work, people are compliant to controls and if I/C objectives are being met
36
describe the first step of CR assessment - specifying audit objectives
- identify and test only key controls - identify whether control objectives related to I/C objectives of validity, completeness, proper period, authorization, accuracy and classification are met
37
describe the second step of CR assessment - define deviation conditions
define the departures from I/C procedures this must be done prior to testing so it is known to auditors before they encounter it
38
what presence are we looking for in defining deviations Incontrol test and give an example
we are looking for the presence of an absence of I/C. e.g. knowing that deviation is a credit manager not initialing on credit sale approvals, thus looking for this
39
describe the third step of CR assessment - define population
says that conclusions can only be projected onto the sample the population comes from. this is important for validity and completeness
40
describe the fourth step of CR assessment - determine sample size
consider that - the higher the sample, the lower the sample risk - tolerable deviation rate - expected population deviation rate - population size (very slight relation to sample size)
41
describe the fifth step of CR assessment - select sample
should be selected from the population that the conclusion will apply to
42
describe the sixth step of CR assessment - perform process
tests are performed with more than one test being performed on one sample - this is favorable because sampling is costly
43
describe the seventh step of CR assessment - evaluate evidence
determine risk of assessing CR as too low or too high and compare TDR to EPDR and SDR
44
what are the risks of assessing CR as too low
if you class it as too low, DR will be high and thus underestimated CR and overestimated the allowable DR. this means that not enough work is done. effectiveness suffers
45
what are the risks of assessing CR as too high
if you class it as too high, DR will be low and thus overestimating CR and underestimated the allowable DR. this means that too much work is done. efficiency suffers
46
is sdr calculated and is tdr expected to be perfect
yes, sdr is calculated and tdr is not expected to be perfect
47
what is tdr
tolerable deviation rate this is the error rate that you accept and still consider the control as functioning determined through professional judgement prior to testing
48
what is sdr
sample deviation rate this is the actual rate of error in the sample determined through testing
49
what is EPDR
expected population deviation rate rate expected prior to performing tests this is determined through professional judgement from prior years and change in I/C
50
what should be done if epdr is greater than tdr
testing of controls should not be done since rate is higher than tolerable - resume with pure substantive
51
what should be done is epdr is less than tdr
test controls and get sdr
52
what does it means it sdr is greater than tdr
controls are not working thus must do pure substantive
53
what is an alternative path if sdr is greater than tdr but your are confident that is not true
obtain a bigger sample. this decision can come from your professional judgement
54
what should be done if sdr is less than tdr
controls are working and a combined approach can be done
55
what should be done when you discover deviations
follow up on the deviations by performing qualitative work and determine if the errors are - pervasive - misunderstanding - deliberate evaluate the effect on F/S and possible purpose and motives
56
what is the A/R not authed example for 3 weeks example
discover that sales on credit have not been authed for 3 weeks perform qualitative work and discover from HR that credit manager was on vacation if all SDR creater than TDR are here - DISSMISS qualitative trumps quantitative
57
what is the price deviations for specific customer example
discover that there are price deviations further research shows that it is only for a specific customer which means that it might be a special contract for lower price and higher volume need to find contract
58
what are the 7 steps in sampling for substantive
- specify audit objective - define population - chose audit sample method - determine sample size - select sample size - perform substantive procedure - evaluate evidence
59
Describe the first step in sampling for substantive procedures - specify audit objective
determine whether all management assertions are materially accurate hypothesize whether BV is materially accurate
60
when are assertions made
when numbers go from trial balance to F/S
61
Describe the second step in sampling for substantive procedures - define population
examine individually significant items that exceed materiality supplement significant items with representative sample from population by using stratification
62
what is stratification
separation of the population into layers that are homogenous
63
what is the main purpose of stratification
reduce sample size
64
what can we stratify on
balance of the item
65
on what can we make conclusions for strata samples
can only make conclusions on the population where the strata comes from
66
how is stratification easier in terms of staffing
it makes it easier to assign staff as higher value items are assigned to higher experience staff and vise versa or lower value
67
Describe the third step in sampling for substantive procedures - chose sampling method
decide whether to use statistical or judgmental sampling for statistical use classical variable or attribute sampling
68
Describe the fifth step in sampling for substantive procedures - select sample
can use random or non-random
69
Describe the sixth step in sampling for substantive procedures - perform procedure
evidence gather will either back or refute management assertions
70
Describe the seventh step in sampling for substantive procedures - evaluate evidence
where you determine identified misstatement (IM) and project it onto the population
71
what is IM similar to in internal control testing
SDR
72
when IM is projected what is it projected as
likely misstatement
73
what is future possible misstatements (FPM)
misstatements that are determined through: - professional judgement for non-sampling risk - formula for sampling risk
74
what is the equation to compare LM and FPM to performance materiality
LM + FPM < performance materiality, the population is accepted
75
what happens if misstatements are less than performance materiality
it will go on the statement of unadjusted items
76
what is the issue with convincing management to make an adjustment
there is a persuasion issue and management have to go back to the subledger and find the mistakes because LM is just a projection and they need to be convinced that they are actually there
77
what will management try and argue
they will try to argue that the only existing misstatements are the known misstatements (IM) and there are no more

ACCT 425 (21 decks)

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