# Module E Flashcards

What is the objective of sampling?

To make a statement about a population of interest

Why sample?

Examining 100% is cost prohibitive

When is sampling used?

When effectiveness can be traded for efficiency…

- Need for exact information is less important

- Number of items comprising the population is large

Uses of Sampling in Auditing

- Study and evaluation of internal control
- substantive procedures

Study and evaluation of internal control - sampling

Selecting control attributes to verify effectiveness

Substantive procedures - sampling

Selecting components or transactions of account balances for verification

Audit Sampling

The selection and evaluation of less than 100% of the items in a population of audit relevance selected in such a way that the auditor expects the sample to be representative of the population and thus likely to provide a reasonable basis for conclusions about the population.

Sampling Risk

Likelihood that the decision based on the sample differs from the decision that would have been made if the entire population were examined

What is the cause of sampling risk?

a non-representative sample (i.e., sample does not represent the population)

How can sampling risk be controlled?

- Determining an appropriate sample size
- Ensuring that all items have an equal likelihood of selection
- Adjusting for sampling risk

What are the two types of sampling risk?

Type I: Risk of incorrect rejection

Type II: Risk of incorrect acceptance

Type I: Risk of Incorrect Rejection (Internal Controls)

the risk that the sample supports a conclusion that the control is not operating effectively when, in fact, it is operating effectively

Type I: Risk of Incorrect Rejection (Substantive Testing)

the risk that the sample indicates that the recorded balance is materially misstated when, in fact, it is not

Type II: Risk of Incorrect Acceptance (Internal Controls)

the risk that the sample supports a conclusion that the control is operating effectively when, in fact, it is not operating effectively

Type II: Risk of Incorrect Acceptance (Substantive Testing)

the risk that the sample supports the recorded balance when it is, in fact, materially misstated

Nonsampling Risk

Incorrect conclusion unrelated to the nature of the sample (Errors of judgment or execution)

How is nonsampling risk controlled?

- Training and supervision
- Reasonable working conditions
- Effort

What are the different approaches to sampling?

- Statistical sampling
- Nonstatistical sampling

Statistical sampling

applies laws of probability in selecting sample items and evaluating sample results

What does statistical sampling allow the audit team to do?

control exposure to sampling risk

Nonstatistical sampling

does not use probability in sample selection and evaluation

What does nonstatistical sampling allow the audit team to do?

Does NOT allow audit team to control exposure to sampling risk

Both statistical sampling and nonstatistical sampling are appropriate under ________, as long as results are __________

GAAS; consistent

What are advantages of statistical sampling?

- Design an efficient sample.
- Measure the sufficiency of evidence obtained.
- Quantify sampling risk.