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IIA Chapter 11
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Gravity
Internal auditing terms from chapter 11
Terms in this set (26)
Audit sampling
the application of an audit procedure to less than 100 percent of the items in a population for the purpose of drawing an inference about the entire population
Sampling Risk
the risk that the internal auditor's conclusion based on sample testing may be different than the conclusion reached if the audit procedure was applied to all items in the population
Statistical and nonstatistical
Two general approaches to sampling
Type II beta risk
The risk of assessing control risk too low. Risk of over-reliance. This states that errors beyond the actual error rate are not found and the control is overstated in its reliability
type I alpha risk
The risk of assessing control risk too high; the risk of under-reliance. This states that the control is placed as unreliable when it actually falls within the manageable guidelines for risk.
Control Risk
the risk that controls fail to reduce controllable risk to an acceptable level
Nonsampling risk
this is not associated with testing less than 100 percent of the items in a population. This occurs when the auditor fails to perform his or her work correctly.
Attribute sampling
a statistical sampling approach that enable the user to reach a conclusion about a population in terms of rate of occurrence. This is most commonly used when evaluating the effectiveness of a particular control.
Stratified attribute sampling
a variation of attribute sampling from a population that can be subdivided. Typically, an auditor will pick a sample from each group that is subdivided and test them for control variance.
stop-or-go sampling
a variation of attribute sampling that is most commonly used when very low deviation rates are expected. A small sample is drawn and the decision to test further amounts is based off the results of this sampling.
discovery sampling
a variation of attribute sampling that is designed to be large enough to detect at least one deviation if the deviation of the population is at or a above a specific rate
Nine steps to attribute sampling
1.) Identify a specific internal control objective and the prescribed control aimed at achieving the objective
2.) Define what is meant by a control deviation
3.) Define the population and sampling unit
4.) Determine the appropriate values of the parameters affecting the sample size
5.) Determine the appropriate sample size
6.) Randomly select the sample
7.) Audit the sample items selected and count the number of deviations from the prescribed control
8.) Determine the achieved upper deviation limit
9.) Evaluate sample results
First step in attribute sampling
Identify a control objective and the control that it aims to correct. In other words, what the point of testing the control is.
Second step in attribute sampling
Define what is meant by a control deviation; what is an error in this control?
Third step in attribute sampling
Define the population and sampling unit; what do you plan on testing to evaluate the control?
Fourth step in attribute sampling
Determine the appropriate values of the parameters affecting the sample size; this includes
the confidence level(risk of accepting control risk too low)
the tolerable deviation rate
the expected population deviation rate
Acceptable risk of assessing control risk to low
the risk that the internal auditor will incorrectly conclude that a specified control is more effective than it really is
Tolerable deviation rate
the maximum rate of deviations that the internal auditor is willing to accept and still conclude that the control is acceptably effective
Expected population deviation rate
the internal auditor's best estimate of the actual deviation rate in the population of items being examined
Fifth step of attribute sampling
Determine the appropriate sample size. Use the tables provided and assess by confidence level, tolerable deviation rate, and expected population deviation rate.
Random sampling
each item in the defined population has an equal opportunity of being selected
Upper deviation limit
The percentage of deviations based on the tables in the book. These are actual deviations found in the audit.
Achieved allowance for sampling risk
the difference between the sample deviation rate and the achieved upper deviation limit
Haphazard sampling
a nonrandom selection technique that is used by internal auditors to select a sample that is expected to be representative of the population
PPS Sampling
Probability proportional to size sampling. Also called monetary unit sampling or dollar unit sampling. This is used to reach a conclusion about dollar amounts rather than rates of occurrence.
Classical variables sampling
Monetary sampling that is based on the normal distribution curve, but is more difficult to complete due to complex calculations
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