Search
Create
Log in
Sign up
Log in
Sign up
ACC 470 Chapter 8 Review
STUDY
Flashcards
Learn
Write
Spell
Test
PLAY
Match
Gravity
Terms in this set (20)
LO 8-1 Define audit sampling.
The selection and evaluation of less than 100 percent 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
LO 8-1 Why do auditors sample instead of examining every transaction?
Due to size and complexity of an entity auditors may find that it is not economical to test every transaction, so instead they select and evaluate a representative sample that is used to provide a reasonable basis for conclusions about the entire population of transactions.
LO 8-2 Distinguish between Type I and Type II errors.
Risk of incorrect rejection (type 1) In testing internal control, this is the risk that the sample supports a conclusion that the control is not operating effectively, when in truth, the control is operating effectively
Risk of incorrect acceptance (Type 2) in testing a control, this is the risk that the sample supports a concussion that the control is operating effectively when in truth it is not operating effectively.
LO 8-2 What terms are used to describe these errors when the auditor is conducting tests of controls and substantive tests? What costs are potentially incurred by auditors when such decision errors occur?
Typical statistical sampling terminology, the term precision relates s to the population characteristics being trusted. given specific sampling risk
Allowance for sampling risks to refect the concept of precision in a samping application
LO 8-3 List audit evidence types that do not involve sampling and provide an example of a situation where an auditor would not use audit sampling.
Analytical Procedures
Scanning
Inquiry
Observation
LO 8-1 Distinguish between nonstatistical and statistical sampling. What are the advantages and disadvantages of using statistical sampling?
statistical Sampling: uses the law of probability to compute sample size, and to evaluate sample results. permits the use of the most efficient sample size and to quantify the sampling risk for the purpose of reaching a statistic conclusion about the population
non statistical sampling : The auditor must rely on his or her professional judgement in combination with audit firm guidance an knowledge on the underlying sampling theories.
LO 8-6, 8-7 Define attribute sampling. Why is this sampling technique appropriate for tests of controls?
Attribute Sampling is used to determine the proportion of a population that posses a specified characteristics
LO 8-6, 8-7 Why is attribute sampling sampling technique appropriate for tests of controls?
In applying this technique to test of controls, the auditor normally attempts to determine the operating effectiveness of a control in terms of deviations from a prescribed internal control
2. Assume the same facts as number 1 except that the auditor decides to apply analytical procedures to the second stratum of loans.
(statistical or nonstatistical) and why.
Non statistical Sampling
The auditor has chosen to participate in limited sampling of the loan receivables in a form of non random sampling. All large transactions are examined, while analytical procedures are used on smaller transactions.
3. An auditor has haphazardly selected 30 sales invoices to be examined for proper pricing of the goods purchased by the customer.
(statistical or nonstatistical) and why.
non statistical sampling
Haphazardly sampling is a selection method associated with non statistical sampling where sampling units are selected without any conscious bias—that is, without a special reason for including or omitting items from the sample.
Attribute Sampling: Steps in Planning
1. Determine the test objectives
2. Define the population characteristics: Sampling population, define sampling unit, control deviation conditions
3. Determine the sample size using the following inputs: Confidence Level, Tolerable Deviation Rate, expected population deviation rate
Attribute Sampling: Performance steps
Select sample items
Perform auditing procedures
*analyze and understand any deviations observed
Attribute Sampling: Evaluation
Calculate the sample deviation rate and computed upper deviation rate
Draw final conclusions
1. An auditor is examining loan receivables at a local bank. The population of loans contains two strata. One stratum is composed of 25 loans that are each greater than $1 million. The second stratum contains 450 loans that are less than $1 million. The auditor has decided to test all loans greater than $1 million and 15 loans less
than $1 million.
(statistical or nonstatistical) and why.
...
4. The prepaid insurance account is made up of four policies that total $45,000. The auditor has decided that this account is immaterial and decides that no policies will be examined.
(statistical or nonstatistical) and why.
...
LO 8-6, 8-7, 8-8 How does the timing of controls testing affect the population definition?
...
LO 8-8 How should the results of a nonstatistical test of controls sample be evaluated in terms of considering sampling risk?
...
LO 8-7 List the four factors that enter into the sample size decision. What is the relationship
between sample size and each of these factors?
...
LO 8-6, 8-7, 8-8 The auditor should evaluate the qualitative aspects of deviations found in a sam- pling application. What are the purposes of evaluating the qualitative aspects of deviations?
...
LO 8-6, 8-7, 8-8 In performing certain audit procedures, the auditor may encounter voided docu-
ments, inapplicable documents, or missing documents, or the auditor may stop test- ing before examining all the items selected for the sample. How should each of these situations be handled within the attribute-sampling application?
...
;