A3/M7 Sampling Tips

Question 1

What is attribute sampling?

Answer 1

Used in test of controls (Yes or No test)

Evaluates if specific control is operating effectively by testing for presence or absence of an attribute.

Question 2

What does attribute sampling not test for?

Answer 2

Does not include dollar amount transaction testing

Larger dollar amounts higher chance of selection for testing (over small dollar amounts)

Question 3

What are the four focuses of test of controls for attribute samplings?

Answer 3

Authorization (approvals before processing testing)

Completeness (all transactions recorded testing)

Accuracy (correct amount testing)

Validity (legitimatize transaction testing)

Question 4

What is variable sampling?

Answer 4

Used in substantive testing to estimate misstatements (dollar transactions testing)

Applied to account balances or transaction amounts (for material misstatements monetary)

Question 5

What does variable sampling not test for?

Answer 5

Larger dollar amounts higher chance of selection for testing (over small dollar amounts)

Question 6

What is Monetary-Unit-Sampling (MUS) also called Probability-proportional to size (PPS) sampling used to test (give examples)?

Answer 6

Focuses on overstatements

Statistical testing giving larger dollar items a higher chance of selection (testing existence and valuation of assets)

Project dollar misstatements found in sample population

Question 7

What’s the difference between statistical sampling vs nonstatistical sampling?

Answer 7

Statistical = Quantifies sampling risk and select a random representative sample by using mathematical formulas and probability theory.

Nonstatistical = Relies on judgement for sample selection and evaluation and does not quantify sampling risk (can be appropriate under GAAS but it lacks objectivity and precision of statistical methods)

Question 8

What is tolerable deviation?

Answer 8

Maximum rate of failure auditor is willing to accept and still rely on the control

Question 9

What is deviation rate?

Answer 9

Rate at which the control fails in a sample

Question 10

What is the relationship between the sample size and the tolerable misstatement (if one increases/decreases the other does ??)?

Answer 10

They have an inverse relationship as tolerable misstatements increase (acceptance for misstatements) the required sample size decreases.

Auditor is willing to accept more errors leading to less testing

Question 11

What is the relationship between sample size and expected misstatements, population variability, and audit risk (if one increases/decreases the other does ??)?

Answer 11

Correlated to each other so if one goes up so does the other.

Higher expected misstatements leads to higher testing sample size, population variability, and audit risk.

Question 12

Can statistical and nonstatistical sampling be used for test of controls or substantive tests or quantify risk?

Answer 12

Yes, but statistical sampling quantifies risk that the sample doesn’t represent the population (where nonstatistical cannot).

Question 13

What is the goal of variable sampling?

Answer 13

Estimate misstatements not control deviations

Question 14

Is variable sampling a substantive procedure and a test of controls?

Answer 14

Part of substantive procedures but not a test of controls

Question 15

What is Monetary-Unit-Sampling (MUS) also called Probability-proportional to size (PPS) sampling not suited for?

Answer 15

Detecting understatement or omissions since it draws only on recorded amounts

Question 16

What is sample size in variable (substantive) sampling influenced by (four factors)?

Answer 16

Tolerable misstatements

Expected misstatements

Standard deviation

Population Size

Question 17

What is the relationship between standard deviation (variability) and sample size?

Answer 17

The larger the standard deviation (variability) the higher sample size to achieve desirable results