17. SAMPLING

Question 1

What is audit sampling?

Answer 1

Testing a subset of items to draw conclusions about the entire population.

Audit sampling is a method used to evaluate a portion of data to infer conclusions about the whole.

Question 2

What is a population?

Answer 2

The complete set of data from which a sample is selected.

Understanding the population is crucial for effective sampling.

Question 3

What is stratification?

Answer 3

Dividing population into subgroups (strata) with similar characteristics to improve efficiency.

Stratification helps in obtaining more accurate results by focusing on specific segments.

Question 4

Name the three selection approaches for audit sampling.

Answer 4

• 100% examination
• Specific items (judgment selection)
• Audit sampling (representative sample)

These approaches vary in terms of thoroughness and applicability.

Question 5

When is 100% testing used?

Answer 5

• Small populations
• High-risk items

100% testing ensures complete accuracy in critical areas.

Question 6

Why is sampling most common?

Answer 6

• Cost efficient
• Time efficient
• Only reasonable assurance required
• Materiality doesn’t require full testing

Sampling balances thoroughness with resource constraints.

Question 7

What is sampling risk?

Answer 7

Risk that conclusion based on sample differs from conclusion if entire population were tested.

This is a significant concern in audit sampling.

Question 8

What is statistical sampling?

Answer 8

• Random selection
• Uses probability theory
• Can measure sampling risk

Statistical sampling provides a structured approach to sampling.

Question 9

What is non-statistical (judgmental) sampling?

Answer 9

Based on professional judgment.

This method is common in practice but cannot precisely measure sampling risk.

Question 10

What is random selection?

Answer 10

Each item has equal chance.

Random selection minimizes bias in sampling.

Question 11

What is systematic sampling?

Answer 11

Every nth item after random start.

Systematic sampling can be efficient but may introduce bias if not carefully implemented.

Question 12

What is Monetary Unit Sampling (MUS)?

Answer 12

Larger dollar items have higher probability of selection.

MUS is mainly used for overstatement testing of assets and revenue.

Question 13

What is haphazard sampling?

Answer 13

No structure, avoid bias.

Haphazard sampling lacks a systematic approach, which can lead to unintentional bias.

Question 14

What is block selection?

Answer 14

Select consecutive items.

Block selection is not ideal for representative sampling due to potential bias.

Question 15

After testing a sample, the auditor must ________ results to the population.

Answer 15

Extrapolate

Extrapolation allows auditors to apply findings from the sample to the entire population.

Question 16

What is the projected misstatement formula?

Answer 16

Projected Misstatement = (Misstatements in sample / Book value of sample) × Book value of population

This formula helps auditors estimate the total misstatement in the population.

Question 17

If projected misstatement is high, the auditor may ________.

Answer 17

• Expand sample size
• Perform additional testing
• Ask management to correct
• Switch to full substantive approach

These actions help ensure the accuracy of financial statements.

Question 18

Increase sample size when:

Answer 18

• Higher RMM
• Higher desired assurance
• Higher expected misstatements

These factors indicate a need for more thorough testing.

Question 19

Decrease sample size when:

Answer 19

• Higher tolerable misstatement
• Other substantive procedures performed

Adjusting sample size based on these factors helps optimize audit efficiency.

Question 20

If control risk is high, what should happen to sample size?

Answer 20

Increase.

Higher control risk necessitates more extensive testing.

Question 21

If tolerable misstatement increases, what should happen to sample size?

Answer 21

Decrease.

A higher tolerable misstatement allows for a smaller sample size.

Question 22

If population is highly variable, what should happen to sample size?

Answer 22

Increase sample size (less predictable).

Variability in the population requires more samples to ensure accuracy.

Question 23

If errors found are small but frequent, what should be done?

Answer 23

Project them — frequency matters.

Frequent small errors can indicate systemic issues.

Question 24

If errors found are large but isolated, what should be done?

Answer 24

Investigate separately (may treat as anomaly).

Isolated large errors may not reflect the overall population.

Question 25

What is the connection between risk and sample size?

Answer 25

Risk ↑ → Sample size ↑ → Evidence ↑ ## Footnote Higher risk requires more evidence through larger sample sizes.

Question 26

What happens to sample size if controls are effective?

Answer 26

Less substantive sampling. ## Footnote Effective controls reduce the need for extensive testing.

Question 27

What happens to sample size if controls are ineffective?

Answer 27

More sampling or shift to details. ## Footnote Ineffective controls necessitate a more thorough audit approach.