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17 Cards in this Set
- Front
- Back
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Sampling– what is the objective, when should sampling techniques be used?
objective |
to make a statement about a population by examining only a subset of that population
since we only test a subset of the population, sampling trades effectiveness for efficiency |
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when should sampling techniques be used?
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the need for exact information is not important
the number of items comprising a population is large |
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typesof risk – sampling risk vs. non-sampling risk
sampling |
risk that the decision made based on the sample differs from the decision that would have been made by examining the population
type I error- risk of incorrect rejection type II error- risk of incorrect acceptance cause is selecting a non representative sample controlled by determining an appropriate sample size. ensuring that all items have an equal opportunity of selection mathematically evaluating sample results |
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non sampling risk
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incorrect conclusion unrelated to the nature of the sample.
erros of judgment or execution controlled by training and supervision working conditions effort |
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Typesof sampling approaches – statistical vs. non-statistical
statistical |
the auditor used the laws of probability to compute the sample size and evaluate results. The auditor is able to sue the most efficient sample size and quantify sampling risk
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non statistical
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the auditor does not use statistical techniques to determine sample size, select the sample items, or measure sampling risk
both statistical sampling and non statistical sampling can be used in a GAAS audit, but no statistical sampling should not be used as a means to reduce sample sizes |
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Benefits/costsof sampling
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?
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Attributesampling – what is the objective of attribute sampling, what factors affectsample size and how do these factors affect sample size?
OBJECTIVE |
the objective of attribute sampling when sued for tests of controls is to evaluate the operating effectiveness of the internal controll
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what factors affect sample size
desired confidence level |
relationship to sample size- direct
if CL is lower effect on sample size decrease |
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tolerable deviation rate
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inverse relationship to sample size
if TDR is lower effect on sample size increase |
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expected population deviation rate
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direct
if EPDR is lower effect on sample size- decrease |
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population size
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decreases sample size only when population is small ( fewer than 500 items)
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Oncecontrol testing has been completed, auditors must make a decision. What is that decision, how is the decisionmade, and how does the decision affect the rest of the audit?
if UDR > TDR |
conclude that internal control is not functioning effectively
options increase sample size in hopes of supporting planned level of control risk ( generally a bad idea) increase level of control risk, leading to larger sample for substantive tests or more effective substantive procedures ( in order to lower detection risk ) |
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IF UDR < OR EQUAL TO TDR
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conclude that the internal control is functioning effectively
options maintain planned level of control risk, leading to planned level of substantive procedures |
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Explain how you can use the risk of assessing control risk too low(RACTL) to make a statement about the confidence you have in stating that the truepopulation deviation rate falls below the upper deviation rate (UDR )
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confidence interval
we can state that we are 95% (1-RACTL) confident that the actual (true) population deviation is less than or equal to 8.2% (UDR) |
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Riskof Assessing Control Risk Too High (RACTH)/ Risk of Assessing Control Risk TooLow (RACTL) – what they mean in terms of the sample results and the true stateof the population and the implications of RACTL/RACTH on auditeffectiveness/efficiency.
RACTH |
type I error, risk of incorrect rejection
UDR>TDR reduce reliance on control ADR< equal to TDR |
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RACTL
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type II error risk of incorrect acceptance
ADR>TDR reduce reliance on control UDR< equal to TDR |
