Term
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Definition
| In the process of gathering evidence, the auditor uses sampling techniques because it is impossible to review 100% of the controls/transactions applied during the year |
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Term
| what kind of characteristics does representative sample has? |
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Definition
| representative sample has the same characteristics as the population from which the sample was taken |
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Term
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Definition
| risk that material misstatements occur in the financial statements but the auditor does not detect them. |
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Term
| what are two types of audit risk? |
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Definition
sampling risk and nonsampling risk
Audit risk = sampling risk + nonsampling risk |
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Term
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Definition
The risk that the sample is not representative of the population.
For tests of controls, includes the risk of assessing control risk too high (which affects the efficiency of the audit); and the risk of assessing control risk too low (which affects the effectiveness of the audit)
this can be reduced by larger samples |
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Term
| what is a nonsampling risk? |
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Definition
| other aspects of audit risk not related to sampling. e.g. using the wrong audit procedures to gather evidence, interpreting evidence incorrectly. |
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Term
| what is a statistical sample? |
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Definition
| a sample for which sampling risk can be calculated |
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Term
| what is a nonstatistical sample? |
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Definition
| a sample for which sampling risk cannot be calculated. |
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Term
| steps for judgmental sampling |
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Definition
1.judgmentally determine sample size implicitly recognizing relevant factors
2. judgmentally select a representative sample
3. apply audit procedures
4. evaluate test results judgmentally |
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Term
| steps for statistical sampling |
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Definition
1.determine sample size explicitly recognizing relevant factors
2.randomly select a representative sample
3.apply audit procedures
4.evaluate test results statistically using judgment |
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Term
| how do you control nonstatistical sampling risk? |
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Definition
-Selecting appropriate sample sizes (sampling risk decreases as sample size increases)
-Taking a random sample, so it is representative of the population
-Correctly evaluating sample results to consider sample risk (i.e. increase auditor compitence) |
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Term
| what does the auditor has to determine in attribute sampling? |
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Definition
| the auditor determines whether a characteristic of interest (attribute) in the population (the internal control) is present by looking at a sample from the population. |
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Term
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Definition
| the tested control/transaction |
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Term
| what is deviation or error? |
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Definition
| an exception from the tested characteristic or a mistake in transaction |
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Term
| what is a tolerable deviation rate(TDR)? |
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Definition
| the deviation or mistake rate the auditor will permit and still be willing to conclude the process control is operating effectively. |
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Term
| steps for test of controls sampling plan |
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Definition
Step 1 Describe the internal control being tested
Step 2 Determine the control objectives including the relevant assertion
Step 3 Define the population and the sampling unit
Step 4 Define the deviation condition
Step 5 Determine the desired level of assurance, the tolerable deviation rate, and the expected population deviation rate
Step 6 Select method for determining sample size
Step 7 Determine the method of sample selection
Step 8 List the selected sample items
Step 9 Describe how the sampling procedure was performed
Step 10 Evaluate the sample results and make a decision |
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Term
| what is the decision rule in deciding acceptability of the population(attribute sampling)? |
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Definition
| SDR + allowance for sampling error <= TDR |
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Term
| when does deviation condition occurs? |
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Definition
| when there is no indication that the control has been performed. Defining the deviation before testing begins is important so that the auditor has a clear understanding of the conditions necessary for the control to be working. |
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Term
| what are desired level of assurance, deviation rate, and expected deviation? |
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Definition
Desired Level of Assurance: 95% or 90%. sample size increases
Tolerable Deviation Rate: 2-20%. sample size decreases
Expected Rate of Deviation:0-15%. sample size increases |
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Term
| method of determining the sample risk? |
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Definition
| statistical or nonstatistical |
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Term
| what is simple random sampling? |
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Definition
| the auditor generates random numbers from a random number table then selects the document number corresponding to the random number generated |
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Term
| what is systematic random sampling? |
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Definition
| the auditor divides the number of units in the population by the number in the sample size to calculate a sampling interval and then generates a random number in the sampling interval. |
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Term
| what is haphazard sampling? |
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Definition
| the auditor selects the sample without any conscious bias. cannot be used for statistical sampling. |
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Term
| if the answer for "is the control working?" is "yes", what does the result indicate? |
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Definition
Actual Control deviations + Allowance for sampling risk < Tolerable deviations
In this case, auditors would reduce the level of substantive testing based on their reliance on internal controls |
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Term
| if no, what does the result indicate? |
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Definition
| actual control deviation + allowance for sampling risk > tolerable deviations |
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Term
| when control is judged not effective, the auditor has options to... |
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Definition
-expand the sample size
-revise the assessed control risk upward(increase substantive test)
-consider implications for integrated audit reporting including classification as a material weakness or a significant deficiency |
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Term
| what is variables sampling? |
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Definition
| the use of sampling to test account balances and classes of transactions |
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Term
| is the account balance/class of transactions materially misstated? if yes... if no... |
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Definition
yes: perform additional tests
no: conclude that the relevant assertion for the account balance |
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Term
| steps for sampling plan for substantive tests of details |
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Definition
Step 1 Describe the objectives of the test, the accounts, and the assertions affected
Step 2 Define the population and the sampling unit
Step 3 Define misstatement
Step 4 Determine the desired level of assurance, the estimated misstatement and the tolerable misstatement
Step 5 Select the method for determining sample size
Step 6 Determine the method of sample selection
Step 7 List the selected sample items
Step 8 Describe how the sampling procedure was performed
Step 9 Evaluate the sample results and make a decision |
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Term
| if projected misstatement + sampling risk <= tolerable misstatement, then |
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Definition
| the account balance/class of transactions is not materially misstated. |
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Term
| if projected misstatement + sampling risk > tolerable misstatement, then |
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Definition
| the account balance/class of transactions is materially misstated. |
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