Acctg Ch9

Front 1

achieved upper limit

Back 1

the maximum likely control procedure failure rate in the population based on an attribute estimation sample

Front 2

allowance for sampling error (precision)

Back 2

a factor used in planning statistical samples that represents the precision required in the sample to keep sampling risk at the desired level, provides elbow room for the difference between sample misstatement projections and the actual, but unknown, misstatement in the population

Front 3

attribute

Back 3

a characteristic of the population of interest to the auditor, most often it is a control procedure but it could also be an operational aspect, such as promptly responding to customer inquiries

Front 4

attribute estimation sampling

Back 4

a statistical sampling method used to estimate the most likely and maximum rate of control procedure failures based on selecting and auditing one sample, most commonly used statistical methods to test controls

Front 5

audit sampling

Back 5

the application of an audit procedure to less than 100% of the items within an account balance or class of transactions for the purpose of evaluating some characteristic of the balance or class

Front 6

basic precision

Back 6

the upper misstatement limit when no misstatements are detected in a PPS sample, computed by multiplying the sampling interval by the reliability factor

Front 7

classical variables sampling methods

Back 7

the statistical sampling methods that are based on the normal curve and central limit theorem; mean per unit, ratio estimation, and difference estimation sampling

Front 8

discovery sampling

Back 8

a special case of attribute estimation sampling used to test for critical events such as potential fraud

Front 9

error expansion factor

Back 9

a factor used in determining the sampling interval/size for PPS sampling to provide for additional sampling error when some misstatement is expected

Front 10

expected failure rate

Back 10

the auditor's best estimate of the percentage of transactions processed for which the examined control procedure is not operating effectively

Front 11

expected misstatement

Back 11

the amount of misstatement that the auditor estimates is in the population

Front 12

haphazard selection

Back 12

selection of sample items with no conscious bias; not randomly based, and therefore cannot be used for statistical sampling

Front 13

incremental allowance for sampling error

Back 13

provision for additional sampling error when misstatements are detected in a PPS sample, factors are determined from tables derived from the underlying sampling distribution

Front 14

misstatement

Back 14

for substantive sampling purposes, the differences in recorded values and audited values resulting in a difference that affets the account total

Front 15

most likely misstatement

Back 15

in PPS sampling, the sum of the top-stratum misstatements and the projection of the lower-stratum misstatements, auditor's best estimate of the total misstatement in the population

Front 16

nonsampling risk

Back 16

the risk of improperly auditing sampled items or misjudging inherent or control risk

Front 17

other substantive procedures risk (OSPR)

Back 17

the risk that all of the substantive tests, other than the planned sampling test, will fail to detect a material misstatement. professional standards refer to OSPR as analytical procedures risk

Front 18

population

Back 18

the group of transactions or the items that make up an account balance for which the auditor wants to estimate some characteristic, such as the effectiveness of control procedures

Front 19

precision

Back 19

the spread, or difference, between the tolerable and expected control procedure failure rates. also known as allowance for sampling error

Front 20

probability proportional to size PPS

Back 20

sampling method based on attribute estimation sampling but involving dollar misstatements rather than failure rates, each item in the population has a probability of being included in the sample proportionate to the dollar value of the item, most effective when auditing for the overstatement of a population and when no or few misstatements are expected

Front 21

random-based selection

Back 21

sample selection methods in which each item in the population has an equal chance of being selected; only random-based samples can be statistically evaluated

Front 22

reliability factors

Back 22

factors related to the TD risk used to determine the sample interval/size for PPS sampling

Front 23

risk of assessing control risk too low

Back 23

the risk that the assessed level of control risk based on the sample is less than the true operating effectiveness of the controls, statistical risk

Front 24

risk of incorrect acceptance

Back 24

the risk of concluding from a sample that the book value is not materially misstated when in fact it is, sometimes referred to as a type II error, beta risk

Front 25

sampling risk

Back 25

the probability that a sample is not representative of the population, which can lead the auditor to the wrong conclusion about the population, composed of the four immediately preceding risks

Front 26

sampling error

Back 26

the possibility that the projected misstatement will differ from the actual, but unknown, misstatement in the population

Front 27

sampling units

Back 27

the individual auditable elements, as defined by the auditor, that constitute the population, such as customers' balances or individual unpaid invoices

Front 28

statistical sampling

Back 28

the application of probability theory and statistical inference in a sample application to assist the auditor in determining an appropriate sample size and in evaluating the sample results

Front 29

stratification

Back 29

dividing the population into relatively homogeneous groups called strata, can be performed judgmentally by the auditor but is most often performed with the assistance of generalized audit software to achieve optimum sampling efficiency

Front 30

tainting percentage

Back 30

in PPS sampling, the amount of misstatement as a percent of the sample item's book value, calculated individually for each sampled item

Front 31

test of details risk

Back 31

a synonym for the risk of incorrect acceptance, part of detection risk related to a sampling application

Front 32

tolerable failure rate

Back 32

the auditor's assessment of the maximum rate of control procedure failure that can occur and still allow the auditor to rely on the control

Front 33

tolerable misstatement

Back 33

the maximum amount of misstatement the auditor can accept in the population

Front 34

top stratum

Back 34

population items whose book values exceed the sampling interval and are therefore all included in the test. the top stratum consists of all account balances exceeding a specific dollar amount

Front 35

upper misstatement limit

Back 35

the maximum dollar overstatement that might exist in a population, given the sample errors noted, at the specified level of TD risk, =basic precision + most likely misstatement + incremental allowance for sampling error