Term
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Definition
| Audit Sampling is selection of less than 100% of the population of audit relevance, and the evaluation of that sample, such that the auditor expects the items selected (the sample) to be representative of the population, and thus likely to provide a reasonable basis for conclusions about the population. In this context, a representative sample is one that will result in conclusions that, subject to the limiations of sampling risk, are similar to those that would be drawn if the same procedures were applied to the entire population. Basic to audit sampling is sampling risk, the risk that the auditor's conclusion based on the sample may be different from the conclusion if the entire population were subjected to the same audit procedure. |
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Term
| Example of what is not sampling? |
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Definition
1) Inquiry and observation (obtaining an understanding of controls, scan AR for unusual items, observing, inspect land and building)
2) Analytical procedures
3) Procedures applied to every item in a population (e.g. some audits plans include the audit of all "large" accounts and a portion of the small accounts. In such situations only the "small" accounts would be subject to sampling.
4) Test of controls where application is not documented (e.g. procedure that depends on segreation of duties)
5) Procedure from which the auditor does not intend to extend a conclusion to the remaining items in the account.
6) Untested balances. |
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Term
| General approaches to Audit Sampling - Nonstatistical and Statistical |
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Definition
a. Both involve judgment in planning, executing the sampling plan, and evaluating the results of the sample.
b. Both can provide sufficient appropriate audit evidence.
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Term
Statistical sampling helps the auditor to |
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Definition
1) Design an efficient sample
2) Measure the sufficiency of the audit evidence obtained
3) Evaluate the sample results. The auditor can objectively quantify sampling risk to limit it to a level considered acceptable. |
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Term
| Cost of statistical sampling |
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Definition
1) Training auditor
2) Desinging samples
3) Selecting items to be tested |
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Term
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Definition
Audit risk is a combination of the risk that a material misstatement will occur and the risk that it will not be detected by the auditor. It consist of
- the risk (inherent risk and control risk) that the balance or class and related assertions contain misstatements that could be material when aggregated with other misstatements.
- The risk (detection risk) that the auditor will not detect such misstatements.
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Term
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Definition
AR = IR * CR * AP * TD
AR = Audit risk
IR = Inherent risk
CR = Control risk
DR = Detection risk
AP = Analytical procedures risk and other relevant substative tests
TD = Test of details allowabe risk of incorrect acceptance for this substantive test |
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Term
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Definition
Nosampling risk includes all aspects of audit risk that are not due to sampling. It is controlled by adequate planning and supervision of audit work and proper adherence to quality control standards. The following are examples of nonsampling risk
- The failure to select appropriate audit procedures
- The failure to recognize misstatements in documents examined
- Misinterpreting the results of audit tests
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Term
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Definition
Sampling risk is the risk that the auditor's conclusion, based on a sample, might be different from the conclusion that would be reached if the test were applied in the same way to the entire population.
a) Test of controls sampling risk include the risk of assessing control risk too high and the risk of assessing control risk too low.
b) Substantive test sampling risks include the risk of incorrect rejection and the risk of incorrect acceptance. |
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Term
| Nonsampling risk, how do you identify? |
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Definition
| To identify nonsampling risk, think of it as the risk of "human" type errors (e.g. failure to detect a misstatement) |
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Term
| Types of audit test in which sampling may be used |
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Definition
- Test of controls
- Substantive tests
- Dual-purpose tests
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Term
| Types of Statistical Sampling Plans |
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Definition
a. Attributes sampling (used in tests of controls) reaches a conclusion in terms of a rate of occurence.
b. Variables sampling (used in substantive testing) reaches a conclusion in dollar amounts (or possibly in units)
- Probability-proportional-to-size (PPS) sampling
- Classical variables sampling techniques
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Term
| Attributes Sampling (used in Tests of Controls) |
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Definition
1. Determine the objectives of the test
2. Define the deviation conditions
3. Define the population
a) Define the period covered by the test
b) Define the sampling unit
c) Consider the completeness of the population
4. Determine the method of selecting the sample
a) Random-Number sampling
b) Systematic sampling
c) Other sampling
5. Determine the sample size
a) Consider the acceptable risk of assessing control risk too low
b) Consider the tolerable rate
c) Consider the expected population deviation rate
d) Consider the effect of population size
e) Consider a sequential or a fixed sample-size approach
6. Perform the sampling plan
7. Evaluate the sample results
a) Calculate the deviation rate
b) Consider sampling risk
c) Consider the qualitative aspects of the deviations
d) Reach an overall conclusion
8. Document the sampling procedure. |
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Term
| Risk of assessing control risk too high (alpha risk, type I error) |
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Definition
| Risk of assessing control risk to high is the risk that the assessed level of control risk based on the sample is greater than the true operating effectiveness of the control structure policy or procedure. Know that this risk relates to audit efficiency. If the auditor assesses control risk too high, substantivetests will consequently be expanded beyond the necessary level, leading to audit inefficiency. |
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Term
| Risk of assessing control risk too low (beta risk, type II error) |
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Definition
| Risk of assessing control risk too low is the risk that the assessed level of control risk based on the sample is less than the true operating effectiveness of the control structure policy or procedure. Know that this risk relates to audit effectiveness. If the auditor assesses control risk too low, substantive test will not be expanded to the necessary level to ensure an effective audit. Becasue materially misstated financial statements may result from this situation, controlling this risk is generally considered of greater audit cocnern thatn controlling the risk of assessing control risk too high. |
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Term
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Definition
| A sampling plan enabling the auditors to estimate the deviation rate in a population |
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Term
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Definition
| A defined rate of depature from prescribed controls, Also referred to as occurrence rate or expection rate. |
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Term
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Definition
| A classical variables sampling plan that uses the difference between the audited (correct) values and the book values of items in a sample to calcuate the estimated total audited value of the population. |
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Term
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Definition
| A procedure for determining the sample size required to have a stipulated probability of observing at least one occurrence when the expected population deviation rate is at a designated level. It is most appropriate when the expected deviation rate is zero or near nearo. If a deviation is detected, the auditor must either (1) use an alternate approach, or (2) if the deviation is of sufficent importance, audit all transaction |
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Term
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Definition
| A classical variables sampling plan enabling auditors to estimate the average dollar value of items in a population by determining the average value of items in a sample |
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Term
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Definition
| The amount (or amounts) set by the auditor at less than materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected mistatements exceeds materiality for the financial statements as a whole. It may also refer to the amount or amounts set by the auditor at less than the materality level or levels for particular classes of transactions, account balances, or disclosures. |
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Term
| Probability-proportional-to-size (PPS) sampling |
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Definition
| A variables sampling procedure that uses attributes theory to express a conclusion in monetary amounts. |
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Term
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Definition
| A classical variables sampling plan enabling auditors to use the ratio of audited (correct) values to book values of items in asample to calculate the estimated total audited value of the population. |
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Term
| Risk of incorrect acceptance |
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Definition
| The risk that sample results indicate that a population is not materially misstated when in fact, it is materially misstated. |
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Term
| Risk of inccorrect rejection |
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Definition
| The risk that sample results indicate that a population is materially misstated when, in fact, it is not. |
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Term
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Definition
| Division o fthe population into groups. |
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Term
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Definition
| A monetary amount set by the auditor in respect of which the auditor seeks to obtain an appropriate level of assurance that the monetary amount set by the auditor is not exceeded by the actual misstatement in the population. Tolerable misstatement is also the application of performance materiality to a particular sampling procedure. |
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Term
| Tolerable rate of deviation |
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Definition
| A rate of deviation from prescribed internal control procedures set by the auditor in respect of which the auditor seeks to obtain an appropriate level of assurance that the rate of deviation set by the auditor is not exceeded by the actual rate of deviation in the population. |
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Term
| Uncorrected misstatements |
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Definition
| Misstatements that the auditor has accumulated during the audit and that have not been corrected. |
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Term
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Definition
Every nth item is selected after a random start. When a random starting point is used, this method provides every sampling unit in the population an equal chance of being selected. If the population is arranged randomly, systematic selection is essentially the same as random number selection
1) One problem with systematic sampling is that the population may be systematically ordered; for example, the identification number of all large items end with a nine. A biased sample may result since nine's may be selected either too frequently or never. This limiation may be overcome by using multiple random starts or by using an interval that does not coincide with the pattern in the population.
2) An advantage of systematic sampling, as compared to random-number sampling, is that the population items do not have to be consecutively numbered for the auditor to use this method. |
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Term
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Definition
A sample consisting of contiguous units.
The advantage of block sampling is the ease of sample unit selection. The disadvantage is that the samples selected may not be representative of the overall population. Because of this disadvantage this method is generally the least desirable method. |
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