Mcconnell Auditing Chapter 15 Minitest

Front 1

Representative sample

Back 1

one in which the characteristics in the sample are approximately the same as those of the population. This means that the sampled items are similar to th items not sampled. Assume a client's internal controls require a cleark to attach a shipping document to every duplicate sales invoice, but the cleak fails to follow the procedure exactly 3% of the time. If the auditor selects a sample of 100 duplicate sales invoices and finds three are missing attached shipping documents, the sample is highly representative. IF two or 4 are found reasonably representative. IF none are found sample is nonrepresentative.

Front 2

In practice do auditors ever know if the sample is representative

Back 2

no not even after testing is complete. Only way to tell is by testing everything.

Front 3

How can you increase the likelihood of the sample being representative?

Back 3

By using careful care in designing the samplling process, sample selection, and evaluation of sample results.

Front 4

How can a sample be nonrepresentative?

Back 4

If there is nonsamplinr error or sampling error

Front 5

nonsampling risk

Back 5

The risk that audit tests do not uncover existing exceptions in the sample. The 2 causes of risk are the auditr's faliure to recognize exceptions and inappropriate or ineffective audit procedures.

Front 6

Why might an auditor fail to recognize an exception?

Back 6

exhaustion, boredom, or lack of understanding of what to look for.

Front 7

If an auditor concluded no exceptions existed hwat is it?

Back 7

nonsampling error

Front 8

What would an ineffective audit procedure for detecting the exceptions in question would be

Back 8

to examine a sample of shipping documents and determine whether each is attached to a duplicate sales invoice, rather than to examine a sample of duplicate sales invoices to determine if shipping documents are attached.

Front 9

Sampling risk

Back 9

Risk an auditor reaches an incorrect conclusion because the sample is not representative of the population. TSAmplling risk is an inherent part of sampling that results from testing less than the entire population.

Front 10

Example of sampling risk

Back 10

Assume auditor decided that a control is not effective if there's a population exception rate of 6% assume auditor accepts the control as effective based on tests of the control with a sample of 100 items that had 2 exceptions. IF the population actually has an 8% exception rate, the auditor incorrectly accepted the population because the sample was not sufficiently representative of the population.

Front 11

2 ways to detect sampling risk

Back 11

1. Adjust sample size
2. Use an appropriate method for selecting sample items from the population.

Front 12

what affect does increasing sample size have on sampling risk

Back 12

it reduces sampling risk and vice versa

Front 13

WHat does using an appropriate sample selection do

Back 13

increases likelihood of representativeness. Doesn't eliminate or reduce sampling risk, but it does allow auditor to measure risk associated with given sample size if statistical methods of sample selection and evaluations are used.

Front 14

What can audit sampling methods be divided into

Back 14

1. statsitical sampling
2. nonstatistical sampling

Front 15

What three phases do each category involve?

Back 15

1. Plan the sample
2. Select the sample and perform the tests
3. Evaluate the results

Front 16

What purpose does planning the sample serve?

Back 16

Makes sure audit tests are performed in a manner that provides desired sampling risk and minimizes likelihood of nonsampling error

Front 17

Selecting a sample involves

Back 17

Deciding how a sample is selected from the population The auditor can perform the audit tests only after the sample items are selected.

Front 18

Evaluating the results is

Back 18

drawing of conclusions based on audit tests.

Front 19

Statistical sampling differs from nonstatistical sampling

Back 19

By applying mathematical rules auditors can quantify (measure) sampling risk in planning the sample and evaluating the results.

Front 20

Nonstatistical sampling

Back 20

Auditors do not quantify sampling risks. INstead auditors choose sample items they believe will provide the most useful information, given the circumstances, and reach conclusions about populations on a judgmental basis. For that reason often termed judgemental sampling.

Front 21

Probabilistic sample selection

Back 21

the auditor randomly selects items such that each population item has a known probability of being included in the sample. This process requires great care and uses one of several methods.

Front 22

Nonprobabailistic sample selection

Back 22

Auditor selects sample items using professional judgement rather than probabilisitc methods. Auditors can use one of several nonprobabilisitc sample selection methods.

Front 23

Nonprobabilistic (judgmental) sample selection methods include

Back 23

1. Directed sample selection
2. Block sample selection
3. Haphazard sample selection

Front 24

Probabilistic sample selection methods

Back 24

1. Simple random selection
2. Systematic sample selection
3. Probability proportional to size sample selection
4. Stratified sample selection

Front 25

Directed sample selection

Back 25

Auditors deliberately select each item in the sample based on their own judgmental criteria instead of using random selection.

Front 26

Items most likely to contain misstatements

Back 26

Often able to identify examples include accounts receivable outstanding for a long time, urchases from and sales from related officers and affiliated companies. Investigates these. IN evaluating samples auditors reason that if none of the items selected are misstated it is unliekly that the population is materially misstated.

Front 27

Items containing selected population characteristics

Back 27

By selecting one or more items with different populaton characteristics auditor may be able to design the sample to be representative. Example may select a sample of cash disbursements that includes some from each month, each bank account or location, and each major type of acquisition.

Front 28

Large dollar coverage

Back 28

Auditors can sometimes select a sample that includes a large portion of total population dollars and therebyt reduce the risk of drawing an improper conclusion by not examining small items.

Front 29

Block sample selection

Back 29

Select first item in a bloc, and the remainder of the block is chosen in sequence. Assume block sample will be a sequence of 100 sales trans from sales journal for third week of March. Auditors can select total sample of 100 by taking 5 blocks of 20 items, 10 blocks of 10 50 blocks of 2 or 1 block of 100

Front 30

Acceptable to use block samples if

Back 30

a reasonable number of blocks is used if a reasonable number of blocks is used. If few blocks are used probability of obtaining nonrepresentative sample is too great, considering changes in acocunting system, emp turnover, ect

Front 31

Block sampling can be used to suplement other when

Back 31

there is high likelihood of misstatement for know period.

Front 32

Haphazard sample selection

Back 32

Selection without any conscious bias by auditor. Selects pop items without regards for their size, source, or other distinguishing characteristics.

Front 33

SHortcoming of haphazard

Back 33

Difficulty of remaining unbiased in selection because of auditpr's training and unintentiaonal bias, certain population items are more likely than others to be included in the sample.

Front 34

Although less logical than directed sample selection used

Back 34

hwne cose of more complex sample outweighs benefits.

Front 35

Random sample

Back 35

EVery possible combo of population items has an equal chance of being included in the sample. Auditors use simple random sampling to sample populations when there is no need to emphasize one or more types of population itmes.

Front 36

When simple random sample what method must hey use

Back 36

One that allows equal chance of selection. Suppose wants to sample 12000. Simple sample will be one such that each of the 12000 has an equal chance of being selected. Auditor will choose one random number betwee 1 and 12000. ASsume 2895. if that's it must check the 2895 dispursement transaction.

Front 37

What are random numbers

Back 37

A series of digits that have equal probabilities of occurring over long runs and which have no identifiable pattern. Auditors most often generate random numbers by using one of three computer sample selection techniques: electronic spreadsheets, random number generators, and generalized audit software.

Front 38

With replacement

Back 38

an element in pop can be included in the sample more than once.

Front 39

Without replacement

Back 39

AN item can be included only once. Although both are usable but auditors rarely use replacement sampling

Front 40

systematic sample selection

Back 40

Calculates an interval and then selects the items for the sample based on the size of interval whcih iss determined by dividing the population size by desired sample size.

Front 41

Advantage of systematic selection

Back 41

ease of use in most populations this can be drawn quickly and approach automatically puts numbers in sequence making it easy to developp appropriate documentation.

Front 42

WHat is a concern of systematic selection

Back 42

A concern is that because of the way it is done once the first item in the sample is selected, all other items are chosen automatiacally.. This causes no problem if teh characteristic of interst such as a possble control deviation, is distributed randomly throughout the population.

Front 43

In many auditing situations, it is advantageous to select samples that emphasize population items with larger recorded amounts 2 ways.

Back 43

1. TAke sample in which probability of selecting any individual population item is proportional to its recorded amount. this iscalled sampling with probability proportional to size. (PPS) and is evaluated using non-statistical sampling or monteary unit statistical sampling.
2. Divide population into subpopulations, usually by dollar size, and take larger samples from the subpopulations with larger sizes. This is called stratified sampling, and is evaluated using nonstatistical sampling or variables statistical sampling.

Front 44

SAmpling with probability proportional to size

Back 44

1. TAke sample in which probability of selecting any individual population item is proportional to its recorded amount. this iscalled sampling with probability proportional to size. (PPS) and is evaluated using non-statistical sampling or monteary unit statistical sampling.

Front 45

Stratified sampling

Back 45

Divide population into subpopulations, usually by dollar size, and take larger samples from the subpopulations with larger sizes. This is called stratified sampling, and is evaluated using nonstatistical sampling or variables statistical sampling.