Evidence -- Sampling

Question 1

How would I quantify the risk that sample evidence leads to erroneous conclusions about the sampled population (i.e. What would need to happen)?

Answer 1

Each item in the sampled population must have an equal or known probability of being selected

E.g. Probability (a.k.a “random”) sampling is used in any sampling plan in which every item in the population has an equal (or known) and nonzero probability of being chosen

Question 2

In Monetary Use Sampling, how would I quantify the risk that sample evidence leads to erroneous conclusions about the sampled population (i.e. What would need to happen)?

Answer 2

Each item in the sampled population must have a chance of being selected that is proportional to its carrying amount

Question 3

What is an advantage of using classical variables sampling?

Answer 3

Inclusion of zero and negative balances usually does not require special design considerations

Question 4

What is a disadvantage of Monetary-Use Sampling (MUS)?

Answer 4

• It is designed to detect overstatements but not for estimating understatements

E.g. The smaller the item, the less likely it will be selected in the sample;

• but the more likely the item is understated

Question 5

What sampling method does the auditor use to test the effectiveness of controls?

Answer 5

Attribute sampling

E.g. This allows me to estimate the occurrence rate of deviations;

• and to determine the relation of estimated rate to tolerable rate

Note: Variable sampling is concerned with dollar values; WHILE

Attribute sampling is concerned with deviation rates

Question 6

What type of sampling procedure am I talking about when I say “Statistical sampling may be used to test the effectiveness of controls?”

Answer 6

I am talking about “Attribute Sampling”

Question 7

What should I include in my consideration of tolerable misstatement for the sample of a substantive test of details?

Answer 7

The relation to preliminary judgments about materiality levels

E.g.  
When planning a sample for a test of details, the auditor should consider how much monetary misstatement in the related account balance or class of transactions may exist without causing the financial statements to be materially misstated

• used in audit planning to determine the necessary precision and sample size

Question 8

What is Nonsampling risk ?

Answer 8

• the risk that the auditor may draw an erroneous conclusion for any reason not related to sampling risk

E.g. use of inappropriate audit procedures or misinterpretation of audit evidence

Note: Nonsampling risk can arise because an auditor failed to recognize misstatements

Question 9

What is the equation for “Projected Misstatements?”

Answer 9

Recorded Amount minus the Audited Amount divided by the Recorded Amount times the “Sampling Interval”

Question 10

What sampling method should I use when;

• There are a large number of items; and
• Past experience indicates numerous pricing and extension errors?

Answer 10

Ratio or difference estimation

Note: Both methods are reliable and efficient when small misstatements predominate and they are not skewed

Question 11

What is a known fact you should know about statistical sampling in tests of controls?

Answer 11

The population size has little or no effect on determining sample size EXCEPT;

• for very small populations

Question 12

What would be a reason to give broader consideration to the implications of a deviation?

Answer 12

If there was an Initial concealment by a forged document

E.g. The discovery of a fraud ordinarily requires broader consideration

Question 13

What is a reason to increase the risk of incorrect rejection?

Answer 13

• When the cost and effort of selecting additional sample items are low

Question 14

What is incorrect rejection?

Answer 14

• the risk that the sample supports the conclusion that the recorded account balance is materially misstated when it is not

E.g. This risk relates to the efficiency of the audit

Note: Incorrect rejection is associated with substantive testing

Question 15

How would I calculate the allowance for sampling risk?

Answer 15

This is calculated by;

• taking the difference between the upper deviation limit and the sample rate

Question 16

What should an auditor consider when planning a sample for a test of controls?

Answer 16

• The Acceptable risk of overreliance

E.g. test of controls is an application of attribute sampling

Question 17

What is NOT a requirement when sampling for substantive tests of details?

Answer 17

Computing the sample standard deviation

Question 18

What is an advantage of statistical sampling?

Answer 18

Statistical sampling helps an auditor to;

• Measure the sufficiency of the evidence obtained.

Question 19

What are the major factors to consider when determining the sample size in an attribute sampling plan for a large population?

Answer 19

(1) the tolerable deviation rate
(2) the acceptable risk of overreliance, and
(3) the expected deviation rate

Question 20

What is a primary use of Variable Sampling?

Answer 20

To estimate quantities or dollar amounts in substantive testing

E.g. Estimating whether the dollar amount of inventory is reasonable

Question 21

What is “Tainting”?

Answer 21

When the percentage of misstatement in the logical unit (the account selected) represents the percentage of misstatement in the sampling interval that it represents