Auditing: Module F
Terms in this set (20)
The effects of various factors on sample size
*Tolerable rate of deviation: Inverse relationship with sample size.
If the audit team wishes to assess control risk at low levels it seems reasonable to hold the client's internal control at a higher standard (use low tolerable rate of deviation)
If control risk is high teh audit team can use a higher tolerable rate of deviation before reducing the reliance on internal control.
*Sampling risk: Inverse relationship with sample size.
Expected population deviation rate: Direct relationship with sample size
*Population size: Direct relationship with sample size
Represents the number of items that the audit team examines. Four main factors:
1) Tolerable rate of deviation
2) Sampling risk
Risk of underreliance
Rick of overreliance
3) Expected population deviation rate
4) Population size
Tolerable rate of deviation
(Inverse relationship with sample size) The maximum rate of deviations permissable by teh audit team without modifying the planned assessed level of control. When determining the audit team should consider:
1) The planned assessed level of control risk
2) The degree of assurance desired by teh audit evidence in the sample
(Inverse relationship with samplel size) The likelihood that the decision made based on the sample differs from the decision that would have been made had hte entire population been examined.
Risk of underreliance, risk of assessing control risk too high
Risk that the audit sample with provide evidence tha thte controls are not functioning effectively, when in fact they are
Risk of overreliance, risk of assessing control risk too low
Risk that the audit sample will provide evidence that the controls are functioning effectively, when in fact they are not
As the planned level of control risk is lower, the audit team should
Reduce the exposure to the risk of overreliance
In attributes sample planning, the audit team will control on the
Exposure to the risk of overreliance in determing the appropraite sample size. This is because overreliance can ultimately result in the audit teams' failing to reudce audit risk to acceptable levels.
Expected population deviation rate
(Direct relationship with sample size) The rate of variations anticipated by the audit team in teh client's internal control policies or procedures; based on experience or a pilot sample.
The difference between tolerable rate of deviation and the expected population deviation rate can be viewed as a
Form of planning precision
(Direct relationship with sample size) Unless the population size is very small the audit team does not consider population size in determining sample size to a great extent.
What are the differeinces between effectiveness and efficiency losses
Evectiveness losses: Insufficient level of substantitive procedures will be performed, usually as a result of risk of overreliance (risk of assessing control risk too low)
Efficiency losses: Additional procedures will be performed, usually as a result of risk of underreliance (risk of assessing control risk too high)
Allowance for Sample Risk (Precision)
The difference between the upper limit rate of deviation and the sample rate of deviation, "adjusts" the sample rate of deviaiton to allow the audit teamto control the exposure risk of overreliance.
A form of sampling used to determine the etent tow hich some characteristic (attribute) occures within a population of interest; used by the audit team during teh testing of controls.
Deviation (Error, Occurence, or Exception)
A condition that refers to instances in which client personnel do not follow prescribed controls and controls are not functioning as intended.
A form of attributes sampling that audit teams use when deviations from controls are very critical but are expected to occur at a relatively low rate.
Expected population deviation rate
The rate of variations anticipated by the audit team in the client's internal control policies or procedures; based on prior experience or a pilot sample.
Physical representations of the population
An audit team's frame of reference for selecting a sample.
Sample rate of deviation
The extent of variations found in the audit team's sample; determined by dividing the number of devitations by the sample size
An initial sample is selected and the audit team (1) draws a final conclusion regarding the effectiveness of the control or (2) selects additional items before drawing a final conclusion regarding the effectiveness of teh control (aka Stop-or-Go Sampling)