Module E: Overview of Sampling

Question 1

allowance for sampling risk (precision)

Answer 1

The numeric distance from the estimated population value in which the true (but unknown) population value may lie with a given probability; used to adjust the sample estimate to control exposure to sampling risk.

Question 2

attributes sampling

Answer 2

A form of sampling used to determine the extent to which some characteristic (attribute) exists within a population of interest; used by the audit team during tests of controls.

Question 3

audit sampling

Answer 3

The application of an audit procedure to less than 100 percent of the items within an account balance or class of transactions for the purpose of evaluating some characteristic of the balance or class.

Question 4

block selection

Answer 4

A method of choosing sample items in which a series of contiguous (or adjacent) items is chosen from the population.

Question 5

confidence level (reliability)

Answer 5

The likelihood that the true population value lies within the precision interval.

Question 6

control risk

Answer 6

The likelihood that the client’s internal control policies and procedures fail to prevent or detect a material misstatement.

Question 7

detection risk

Answer 7

The likelihood that the auditors’ substantive procedures will fail to detect a material misstatement that exists within an account balance or class of transactions.

Question 8

dual-purpose test

Answer 8

An audit procedure used as both a test of controls and a substantive test.

Question 9

haphazard selection

Answer 9

The method of choosing sample items in an unstructured manner but without intentional bias.

Question 10

nonrepresentative sample

Answer 10

A sample that differs substantially from the population on one or more key characteristics of interest from which it is drawn.

Question 11

nonsampling risk

Answer 11

The likelihood that an incorrect conclusion will be reached because of reasons unrelated to sampling.

Question 12

nonstatistical sampling

Answer 12

A plan that does not apply the laws of probability to select representative items for examination and evaluate the results; does not allow an individual to control exposure to sampling risk.

Question 13

population

Answer 13

The entire group of items about which a conclusion is desired in a sampling application.

Question 14

precision interval

Answer 14

The range around the sample estimate that has a likelihood equal to reliability of including the true population value.

Question 15

risk of incorrect acceptance

Answer 15

The likelihood that the audit team will conclude that the client’s account balance is fairly stated when it is materially misstated.

Question 16

risk of incorrect rejection

Answer 16

The likelihood that the audit team will conclude that the client’s account balance is materially misstated when it is fairly stated.

Question 17

risk of overreliance (risk of assessing control risk too low)

Answer 17

The likelihood that the audit team will conclude that the client’s controls are functioning effectively when they are not functioning effectively.

Question 18

risk of underreliance (risk of assessing control risk too high)

Answer 18

The likelihood that the audit team will conclude that the client’s controls are not functioning effectively when they are functioning effectively.

Question 19

sample

Answer 19

A subset of items drawn from a population of interest.

Question 20

sample estimate of misstatement

Answer 20

The difference between the recorded account balance and the audited account balance.

Question 21

sample rate of deviation

Answer 21

The extent of variations found in the audit team’s sample; determined by dividing the number of deviations by the sample size.

Question 22

sampling

Answer 22

The process of making a statement about a population of interest based on examining only a subset (or sample) of that population.

Question 23

sampling interval

Answer 23

An interval determined by dividing the recorded amount of the population (account balance) by the sample size.

Question 24

sampling risk

Answer 24

The likelihood that the decision made based on the sample will differ from the decision that would have been made if the entire population had been examined.

Question 25

standard deviation (standard error of the mean)

Answer 25

A measure of the variability of the population.

Question 26

statistical sampling

Answer 26

A plan that applies the laws of probability to select items for examination and evaluates the results; allows an individual to control the exposure to sampling risk.

Question 27

systematic random selection (systematic selection)

Answer 27

The method of selecting sample items in which a starting point is determined and a fixed number of items are bypassed between selections.

Question 28

tolerable misstatement

Answer 28

The maximum amount by which the account balance or class of transactions can be misstated without the audit team concluding that the account balance or class of transactions is materially misstated.

Question 29

tolerable rate of deviation

Answer 29

The maximum rate of deviation permissible by the audit team without modifying the planned assessed level of control risk.

Question 30

unrestricted random selection (random selection)

Answer 30

A method of selecting items in which all items in the population are assigned a number and chosen based on random numbers.

Question 31

upper limit on misstatements (ULM)

Answer 31

A measure that adjusts the sample estimate of misstatement for the audit team's acceptable level of sampling risk.

Question 32

upper limit rate of deviation (ULRD)

Answer 32

A measure that adjusts the sample rate of deviation for the audit team's acceptable level of sampling risk.

Question 33

variables sampling

Answer 33

A form of sampling used to examine a population to estimate the amount or value of some characteristic of that population; used by auditors during their substantive procedures.