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CH 9 403
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Terms in this set (32)
Non statistical sampling
a technique of audit sampling in which auditors estimate the risk of a sampling error by using their professional conclusion instead of relying on the laws of probability.
Statistical sampling
comprises the sampling error's quantification of the risk by applying mathematics formulas and laws of probability.
sampling risk
the risk that the conclusion of auditors which is based on a sample might be different if the test was performed on the complete population.
Non sampling risk
the risk of a wrong conclusion by auditors which is based on any factor except sampling. can be controlled by sufficient planning and establishing and implementing efficient control policies and measures.
Explain what is meant by the following statement "when sampling, the auditors should determine that the physical representation of the actual population is complete"
an actual population's physical representation is the recorded value which represents the population
Which method leads to a random sample if properly applied?
The random number table selection, the random number generator selection and the systematic selection
Systematic selection
we draw a random sample by selecting every nth item from the population. For this we first choose a starting point and then select every nth item after that
Sampling without replacement
means that if an item is included in the sample, then it will not be replaced back in the population before another item is drawn; therefore one item cannot be included more than once in the sample
sampling with replacement
an item is replaced back in the population after it was included in the sample; one item can be withdrawn several times
Which technique results in a smaller sample size?
Sampling without replacement
Three major factors that determine the sample size for an attributes sampling plan
1. the risk of assessing control risk is too low
2. the tolerable deviation rate
3. the expected population deviation rate
When using attributes sampling, the auditors must estimate the expected population deviation rate. What sources are used to make this estimate?
Auditors generally use the sample results from previous years. Auditors might also estimate the rate on the basis of their experience with similar tests for other client or by inspecting a small pilot sample
When performing attributes sampling, may auditors include several types of attributes in their definition of deviation?
they can only include various types when the significance of the audit attributes is the same
What effects will an auditor's beliefs that the population's actual deviation rate exceeds the tolerable deviation rate have on the test of controls sample size?
An auditor might not perform the test of control if he/she thinks that the actual deviation of the population exceeds the tolerable rate, he/she should select and test the compliance with other internal accounting controls.
Tolerable deviation rate
the maximum deviation rate from a given control procedure that an auditor will be willing to accept
dual purpose test
is used to test a control and substantiating the dollar amount of an account balance. It is used to evaluate the efficiency of a control over sales transaction recording and to estimate the understatement and overstatement of the sales account
When performing a dual-purpose test, how does the auditor arrive at the required sample size?
An auditor calculates the sample size for each purpose and determines the sample size using the larger of the two
What relationship exists between the expected population deviation rate and sample size?
Expected population deviation rate signifies the auditor's best estimates of the deviation rate of the population. It is usually calculated on past experiences of clients. The rate is directly associated with sample size. In attributes sampling, the required sample size would differ directly with the rate of expected deviation.
Two types of sampling plans
attributes and variable plans
What would be the difference between an attributes sampling plan and a variable sampling plan in test of inventory extensions?
Attribute - qualitative, percentage of erroneous extensions, estimates the characteristic rate of deviation
Variable - quantitative, estimate the total dollar amount of misstatements in the list, estimates the characteristic dollar value
Sequential sampling plan
the auditor takes samples from various stages. The auditors select a small sample for examination and based on the result they decide, to evaluate the control risk at the plannel level, or at a higher level or to inspect further sample items to obtain more information
Two aspects of sampling risk
The risk of incorrect rejection and the risk of incorrect acceptance
The risk of incorrect rejection
alpha risk - the possibility that the sample results will give the indication about the material misstatement exisiting in the account balance when in fact it has not occurred.
The risk of incorrect acceptance
beta risk - the possibility that the sample results will give the indication about the material misstatement exisitng in an account balance, when in fact, it has occurred.
Which has more significance?
Risk of incorrect acceptance has more significance than the risk of incorrect rejection
Explain how the auditors may obtain an estimate of a population's standard deviation to determine an appropriate sample size
1. using the result obtained from previous years
2. calculating the standard deviation of bv of the population
3. checking a small pilot sample
For what purpose is the planned allowance for sampling risk used in mean-per-unit sampling?
The auditors determine the appropriate sample size by using planned allowance for sampling risk. It is also used for the evaluation purpose, if auditors find that the standard deviation of the sample is exactly the same with the estimated standard deviation.
When is it necessary to calculate the adjusted allowance for sampling risk?
When the estimated standard deviation is not equal to the standard deviation obtained in the sample. Also the risk of incorrect acceptance remains under the planned level
what conditions are necessary for the auditors to use either the ratio or difference estimation techniques
1. each population item should have a book value
2. for each sample item, an audited value may be discovered
3. the difference between the book value and the audited value are relatively frequent
What options are available to an auditor when the client's book value falls outside the acceptance interval calculated using the estimate of the total value of population?
1. increase the size of sample taken for test
2. perform further audit test
3. work with the client's staff to discover other material misstatement related to the accounts
Explain how, in using the mean per unit to evaluate results, the auditors use the differences between the audited values and the book values of the individual items in their sample
1. the auditors do not use the difference between book values and audited values of the items
Is it correct to say that when using non statistical variables sampling, one is unable to project the misstatements identified to the entire population? Explain why this is or not is the case
It is not correct to use non-statistical variables sampling as it is not possible to project the material misstatement discovered to their entire population
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