M5 Audit Sampling

Question 1

What legislation is relevant to Audit sampling?

Answer 1

ISA 530 - Audit Sampling

Question 2

What methods are there to select an audit sample?

Answer 2

• random/ STATISTICAL
• systematic
• monetary unit
• haphazard

Question 3

What are the conditions required for statistical audit sampling?

Answer 3

• the selection needs to be random, nothing else
• the population size does need to be large
• the use the probability theory

Question 4

What is the process of audit sampling?

Answer 4

1. We take an audit sample
2. We test the sample for misstatements
3. When we find an error, we ask ourselves is it an anomaly or could this be a common error?
4. We project the cmmon misstatements (and add the uncommon) of the sample to the rest of the population with the following formula
   *

Question 5

What do the following terms mean in terms of Audit sampling?
* Stratification
* Tolerable Misstatement
* Tolerable rate of deviation
* population
* Anomaly
* Sampling risk

Answer 5

• population - entire set of data from which the sample is selected, and about which the auditor wants to draw conclusions
• Anomaly - A misstatement or deviation that is demonstrably not representative of misstatements or deviations in the population
• sampling risk - the risk that the auditor’s conclusion, based on the sample maybe be different from the conclusion that would have been reached if the entire population was subject to the same procedure
• Stratification - the process of dividing a population into subpopulations, each of each is a group of sampling units which have similar characteristics to the others in that group
• Tolerable misstatement - the monetary amount set by the auditor which cannot be exceeded by misstatement in the population
• Tolerable rate of deviation - 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