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Yaeger AUD > Mod 7 Audit Sampling Key Concepts > Flashcards

Mod 7 Audit Sampling Key Concepts Flashcards

0
Q

If your testing but not projecting…

A

That’s not sampling

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1
Q

Sampling (3 part definition)

A

1 taking part of the population

2 doing some audit tests

3 then projecting the results

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2
Q

A sample represents the population…

A

When it is drawn randomly

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3
Q

Sampling risk

A

Risk that sample does not represent the population

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4
Q

Nonsampling risk

A

Risk of human error

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5
Q

Risk of assessing control risk too low

A

Overreliance on internal controls

by raising detection risk and performing less substantive tests

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6
Q

For the Risk of assessing control risk too low, what is sacrificed?

A

Effectiveness

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7
Q

Risk of assessing control risk too low doesn’t mean…

2) but…

A

Doesn’t mean financial statements are misstated

2) but there’s a high risk that they are

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8
Q

Risk of assessing control risk to high…

A

Under reliance (on internal controls)

Perform more work than needed

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9
Q

What does the Risk of assessing control risk to high sacrifice?

A

Efficiency

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10
Q

Efficiency

A

Quickly

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11
Q

Effectiveness

A

Reach the right conclusion

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12
Q

Incorrect acceptance

A

Auditor incorrectly concludes $ amount is fairly stated

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13
Q

Incorrect acceptance sacrificed…

A

Effectiveness

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14
Q

Incorrect rejection

A

Auditor incorrectly concludes $ amount is not fairly stated

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15
Q

Incorrect rejection sacrificed…

A

Efficiency

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16
Q

Sacrificing effectiveness can effect…

A

Outcome of your opinion on financial statements

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17
Q

What are 2 other terms with the same meaning as “error”

A

1 exception

2 deviation

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18
Q

Error, exception, deviation mean that…

2) example 2

A

Something is not coming out the way it should

2) shipping documents are not billed or are billed for incorrect
Amount

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19
Q

Attribute sampling

A

Looking at control procedures

To see whether it’s operating effectively or it’s not

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20
Q

Nonstatistical sampling involves more…

A

Judgement

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21
Q

Tolerable rate

A

Error rate in population auditor’s willing to live with

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22
Q

Tolerable rate involves…

A

Judgement

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23
Q

The term “rate” is…

A

Always used in testing a control procedure (not a $ amount)

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24
Example of a rate
Shipping documents that aren't billed properly | If 3 aren't billed properly from a sample of 100, the rate is 3 %
25
Expected population error rate
What error rate the auditor thinks exists based on past experience
26
Risk of assessing control risk too low is part of...
Attribute sampling
27
Relation of tolerable rate to sample size 2) what does this mean?
Inverse 2) If you can tolerate higher error rate in population, sample size Can be smaller
28
Relation of expected population error rate to sample size 2) what does this mean?
Direct 2) if you think there is a higher error rate in the population, you need A bigger sample size
29
Relation of risk of assessing control risk too low to sample size 2) what does this mean?
Inverse 2) if you're going to assess control risk too low, to assess it higher You can get away with a smaller sample size
30
If you want to go from a confidence interval of 90% to 95%, you need...
A bigger sample size
31
Compliment confidence interval, how is it calculated if confidence interval is 95%?
If confidence interval = 95% | The compliment confidence interval = 5% = (1 - 95%)
32
What is the equation for tolerable error rate?
Sample error rate + allowance for sample risk < or = tolerable error rate
33
Example of sample error rate
Tested 100 documents and found 5 not billed So sample error rate = 5%
34
Allowance for sampling risk is determined...
As a judgement of the auditor
35
If sample error rate + allowance for sampling risk is greater than the tolerable error rate
Controls are not operating effectively
36
If sample error rate + allowance for sampling risk is less than or equal to the tolerable error rate then...
Controls are operating effectively
37
6 steps of sample planning
``` 1 determine objective of test 2 define your population 3 determine the sample size 4 select the sampling technique 5 perform sampling plan 6 evaluate results/document ```
38
``` 1 determine objective of test 2 define your population 3 determine the sample size 4 select the sampling technique Are all part of... ```
Planning in the sample plan
39
Sample plan: 1) determine objective of test example
Want to see if shipments have been billed
40
Sample plan: Define your population and deviation example
Population = shipping documents Deviation = shipments not billed
41
Sample plan: Determine the sample size
Use statistical or nonstatistical sampling
42
Sample plan: Select the sampling technique example 2
1 random number generator 2 every nth item
43
Randomly
Every item in population has an equal chance to get into the sample
44
Systematic sampling
Every nth item
45
Systematic sampling (every nth item) is random because...
It's a random start
46
Discovery sampling, main objective Ex.
Wants to virtually assure sample finds errors in population Ex. Want to find phony employees on the payroll
47
Variables sampling involves...
$ amounts
48
Higher confidence level
Higher level of assurance that sample represents the population
49
Relation of confidence interval to sample size What does this mean?
Direct 2) to obtain a higher level of assurance that the sample represents the population, you need a bigger sample size
50
Precision
+ or - range Ex. 100 + or - 3, 3 is the precision
51
Relation of precision to sample size What does this mean?
Direct 2) if you want to be more precise you need a larger sample size
52
Relation of variability in the population to sample size
Direct
53
Relation of tolerable misstatement to sample size What does this mean?
Inverse 2) if you can tolerate higher tolerable misstatement, your sample Size can be smaller
54
Projected misstatement: Logical unit less than sampling interval, equation
Projected misstatement = | Percentage of account misstated x sampling interval
55
Projected misstatement: Percentage of account misstated AKA "taint" calculation
% of account misstated = misstatement/book value
56
Projected misstatement: Logical unit greater than sampling interval
Actual amount of misstatement is considered to be projected misstatement
57
Classical variables sampling uses...
Normal distribution theory (standard deviations) to evaluate Selected characteristics of the population
58
Variations of classical variables sampling: Mean per unit method, Estimated Total Audited Value Calculation (ETAV)
ETAV = population size x average audited value
59
ETAV
Estimated total audited value
60
Variations of classical variables sampling: Mean per unit method, projected misstatement calculation
Projected misstatement = | Population BV - estimated total audited value (ETAV)
61
Variations of classical variables sampling: Difference Estimation Method, calculate average difference in sample 2) calculate projected misstatement
Average difference (in sample) = avg. BV - avg. audited value (AV) 2) projected misstatement = population size x avg. difference (sample)
62
Variations of classical variables sampling: Difference Estimation Method, calculate Estimated total audited value (ETAV), assuming an overstatement has occurred.
ETAV = Population BV - projected misstatement (overstatement)
63
Variations of classical variables sampling: Ratio Estimation Method, calculate estimated total audited value (ETAV)
ETAV = (Sample Avg. AV/Sample Avg. BV) x Population BV
64
Example of population BV
Total book value of accounts in population
65
Variations of classical variables sampling: Ratio Estimation Method, calculate Projected Misstatement
Projected Misstatement = | Population BV - estimated total audited value (ETAV)
66
advantages of Probability proportional to size (PPS) sampling: Generally...
Easier to use
67
advantages of Probability proportional to size (PPS) sampling: Size of sample...
Not based on variation of audited amounts
68
advantages of Probability proportional to size (PPS) sampling: Automatically...
Results in stratified sample
69
advantages of Probability proportional to size (PPS) sampling: Individually...
Significant items are automatically identified
70
advantages of Probability proportional to size (PPS) sampling: Usually results in a...
Smaller sample size if no misstatements are expected
71
advantages of Probability proportional to size (PPS) sampling: Can be easily designed and...
Sample selection can begin before the complete population | Is available
72
advantages of classical variables sampling: May result in a smaller sample size if...
There are many differences between audited and book values
73
advantages of classical variables sampling: Easier to expand...
Sample size if that becomes necessary
74
advantages of classical variables sampling: Selection of zero balances...
Does not require special sample design considerations
75
Inclusion of negative balances does...
Not require special sample design considerations

Yaeger AUD (38 decks)

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