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35 Cards in this Set

  • Front
  • Back
What is acceptable risk of assessing control risk too low (ARACR)?
The risk that the auditor is willing to take of accepting a control as effective or a rate of monetary misstatements as tolerable when the true population exception rate is greater than the tolerable exception rate.
What is an attribute?
The characteristic being tested for in the population.
What is attributes sampling?
A statistical, probabilistic method of sample evaluation that results in an estimate of the proportion of items in a population containing a characteristic of attribute of interest.
What is audit sampling?
Testing less than 100% of a population for the purpose of making inferences about that population.
Representative Sample
A sample with characteristics the same as those of the population.
What is computed upper exception rate (CUER)?
The upper limit of the probable population exception rate; the highest exception rate in the population at a given ARACR.
Define estimated population exception rate (EPER).
Exception rate the auditor expects to find in the population before testing begins.
What is an exception (occurrence) rate?
The percent of items in a population that include exceptions in prescribed controls or monetary correctness. The ratio of items containing the specific attribute to the total number of population items.
Define initial sample size.
Sample size determined by professional judgment (nonstatistical sampling) or by statistical tables (statistical sampling).
Nonsampling Risk
The risk that the auditor fails to identify existing exceptions in the sample; nonsampling risk (nonsampling error) is caused by failure to recognize exceptions and by inappropriate or ineffective audit procedures.
Nonstatistical Sampling
The auditor's use of professional judgement to select sample items, estimate the population values, and estimate sampling risk.
Occurrence Rate
The ratio of items in a poulation that contain a specific attribute to the total number of population items.
What is a probabilistic sample selection?
A method of selecting a sample such that each population item has a known probability of being included in the sample and the sample is selected by a random process.
Random Number Table
A listing of independent random digits conveniently arranged in tabular form to facilitate the selection of random numbers with multiple digits.
Random Sample
A sample in which every possible combination of elements in the population has an equal chance of constituting the sample.
Sample Exception Rate (SER)
Number of exceptions in the sample divided by the sample size.
Sampling Distribution
A frequency distribution of the results of all possible samples of a specified size that could be obtained from a population containing some sepcific parameters.
Sampling Risk
Risk of reaching an incorrect conclusion inherent in tests of less than the entire population because the sample is not representative of the population; sampling risk may be reduced by using an increased sample size and an appropriate method of selecting sample items from the population.
Statistical Sampling
The use of mathematical measurement techniques to calculate formal statistical results and quantify sampling risk.
Systematic Sample Selection
A probabilistic method of sampling in which the auditor calculates an interval (the population size divided by the number of sample items desired) and selectes the items for the sample based on the size of the interval and a randomly selected starting point between zero and the length of the interval.
Tolerable Exception Rate (TER)?
The exception rate that the auditor will permit in the population and still be willing to conclude the control is operating effectively and/or the amount of monetary misstatements in the transactions established during planning is acceptable.
Statistical and Nonstatisticl sampling involve what steps?
(1) Plan the sample, (2) Select the sample and perform the tests, (3) Evaluate the results.
Probabilistic sample selection methods?
(1) Simple random selection, (2) Systematic sample selection, (3) Probability proportional to size sample selection, (4) Stratified sample selection.
Simple Random Sample
Every possible combination of elements in the popluation has an equal chance of constituting the sample.
Sampling with Probability Proportional to Size (PPS)
Take a sample where the probability of selecting any individual population item is proportional to its recorded amount. Evaluated using monetary unit sampling.
Stratified Sampling
Divide the population into subpopulations by size and take larger samples of the larger subpopulations. Evaluated using variables sampling.
Steps for Attributes Sampling
(1) State the objectives of the audit test. (2) Decide whether audit sampling applies. (3) Define attributes and exception conditions. (4) Define the population - all the invoices for the period. (5) Define the sampling unit - the individual sales invoice. (6) Specify the tolerable exception rate - control doesn't have to be 100%. (7) Specify the acceptable risk of assessing control risk too low - think controls are good, risk that they are not. (8) Estimate the population exception rate - before any testing what rate of exceptions do I expect to find, look at last year's results. (9) Determine the initial sample size. (10) Select the sample. (11) Perform audit procedures. (12) Generalize from the sample to the population. (13) Analyze exceptions. (14) Decide acceptablity of the population.
What determines the sample size?
Four factors: Population Size, TER, ARACR, EPER.
Four steps to calculating CUER
(1) Select the table corresponding to the ARACR used to determine the sample size. (2) Locate the acutal number of exception found in the audit tests at the top of the table. (3) Locate the actual sample size in the far left column. (4) Read down the appropriate actual number of exceptions column until it interesects with the appropriate sample size row. The number at the intersection is the CUER.
How does sample size change if ARACR is increased?
Sample size goes down.
How does sample size change if TER is increased?
Sample size goes down.
How does sample size change if EPER is increased?
Increased sample size.
How does sample size change if population size is increased?
No Effect for larger populations. It will increase sample size for smaller populations. (minor effect)
Sampling Errors
Making a mathematical mistake.
Test of Control Procedures is identified by what three terms?
Test of controls, Attribute sampling, Compliance sampling