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Auditing: Module G
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Key Concepts:
Terms in this set (19)
Monetary unit sampling (MUS)
A variable samplng method that the population is viewed as being composed of individual dollars (euros, etc) within an account balance or class of transactions; effective in ensuring large dollar componenets are selected for examination.
Advantages of MUS
* Results in more efficient (smaller) sample size
* Selects transactions or components reflecting larger dollar amounts
* Effective in identifying overstatement errors
Assets and revenue accounts
* Generally simpler to use than classical variables sampling
Comparison of MUS and Classical Variables Sampling
MUS: Overstatement errors are greatest concern
Standard deviation difficult to estimate
Smaller number of misstatements anticipated
Population has high degree of variability and large dollar components exist
Classical Variables Sampling: Both overstatement and under statements errors are of concern
Standard deviation can be estimated
Larger number of misstatements anticipated
Population is homogeneous (in terms of dollar balances) and larger dollar components do not exist
Audited value
The amount at which an account balance or class of transactions should be recorded, assuming no departures from GAAP
Basic allowance for sampling risk
A component of the upper limit on misstatement s determined by multiplying the sampling interval by the confidence factor corresponding to the appropriate risk of incorrect acceptance; its calculation acknowledges that sampling intervals can contain some level of misstatement despite the fact that the logical unit drawn from the sampling interval was not misstated.
Classical variables sampling
An approach that uses the laws of probability and the central limit theorem to provide an estimate of either the amount of misstatement or the true balance of an account balance or class of transactions
Difference estimation
A classical variables sampling method that bases its calculation of the estimated account balance on differences between audited values and recorded values of components of the account balance or class of transactions.
Expectation misstatement
The amount of misstatement the audit team anticipates in the account balance or class of transactions.
Incremental allowance for sampling risk
A component of the upper limit on misstatements detained by adjusting the projected misstatement for the change in confidence factors resulting from detecting the misstatement; its calculation acknowledges that the sampling interval can be misstated to a greater extent than the logical unit drawn from the sampling interval.
Logical unit
The component of an account balance or class of transactions containing an individual dollar selected under MUS; can include customer account balances, items of inventory, and accounts payable to specific vendors.
Mean-per-unit estimation
A classical variable sampling method that bases its calculation of the estiamted balance on teh average audited values of components of the account balance or class or transactions.
Non-statistical method
A sampling method that does not attempt to measure the audit team's exposure to samplng risk in determing sample size or evaluating sample results.
Probability Proportional to Size (PPS) selection
A method of sample selection used for MUS samplng in which each dollar or monetary unit is the sample item, reasulting in a sample that has a higher likelihood of including higher dollar components or transactions.
Projected misstatement
A componenet of the upper limit o misstatements determined by multiplying the sampling interval by teh taining percentage; its calculation assumes that the entire sampling interval is misstated to the same extent as the logical unit drawn from taht sampling interval.
Ratio estimation
A classical variable sampling mothod that bases its calculation of the estimated balance on the ratio of audited values to recorded values of components of the account balance or class of transactions.
Strata
A subgroup into which a population is divided to reduce sample size; has a smaller standard deviation with respect to the characteristic of interest that the complete population.
Stratification
The process of subdividing a population into more homegenous subgroups (or strata); reduces the necessary sample size in a classical variable sampling application.
Tainted percentage
An amount that represents the proportion by which a logical unit is missstaed; determined by dividing the amount of misstatement by teh recorded balance.
True balance
Teh amount at which the client's account balance shoudl be recorded if no misstatements or departures from GAAP.
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