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22 Cards in this Set
- Front
- Back
Statistical Sampling
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o Based on formulas
o Helps find an appropriate audit sample o Helps evaluate evidence obtained o Helps evaluate results and quantify Sampling Risk |
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Non-Statistical Sampling
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o Based on a human decision
o Equally acceptable as Statistical Sampling |
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Substantive Tests
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o Variables Sampling
o Probability Proportionate to Size Sampling |
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Control Tests
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o Attribute Sampling
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Risk of assessing Control Risk too high
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o A risk of Control Testing
o Auditor works to make Control Risk lower More substantive tests o Sample overstates Control Risk o Leads to an under-reliance on internal control, over-testing, and overall audit inefficiency Audit ends up being effective (correct result), but you do more work |
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Risk of assessing Control Risk too low
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o A risk of Control Testing
o Complement to Confidence Level o Inverse relationship to Sample Size Higher accepted risk of assessing Control Risk too low = Smaller Sample Lower accepted risk of assessing Control Risk too low = Larger Sample o Auditor concludes controls are operating effectively based on the sample o Leads to higher Detection Risk Fewer Substantive Tests o Sample understates Control Risk o This error leads to over-reliance on internal control, under testing, and overall audit ineffectiveness o Does NOT necessarily mean that the F/S are materially misstated – it does mean that if there is one, you are less likely to find it |
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Incorrect Acceptance
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o A risk of Substantive Testing
o Auditor accepts a balance as fairly stated, when in fact it is not fairly stated Hurts audit effectiveness Wrong conclusion reached Efficient, but not effective |
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Incorrect Rejection
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o A risk of Substantive Testing
o Auditor rejects balance as fairly stated when in fact it is fairly stated Hurts audit efficiency Wrong recommendations given Effective, but not efficient |
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Classic Variables Sampling
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Testing for a dollar amount
Value in sample gives information about value in entire population Mean Per Unit o Sample Average x Number in Population Stratification o Decreases effect of variance in population and reduces sample size |
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Probability Proportionate to Size (PPS)
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A form of Variable Sampling
Does NOT use Standard Deviation Auditor focuses on a dollar amount Larger or more valuable items get picked more often as part of the sample Projected Misstatement o Misstatement found in sample – have to project it to remainder of population |
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Formula for Audit Sampling
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SER + ASR < TER
Sample Error Rate (SER) Allowance for Sampling Risk (ASR) Tolerable Error Rate (TER) |
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Example of Sample Error Rate (SAR)
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o 5 out of 100 invoices were not approved
correctly o Sample Error Rate = 5% |
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Allowance for Sampling Risk (ASR)
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o The amount that you add to the SER to get
some cushion for your sample o As high as you think the population error rate could go based on experience o ASR is set at 2%, based on judgment o Population error rate could reach 7% (5+2) |
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Tolerable Error Rate (TER)
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o The amount of error rate that you can accept
o If population error rate is less than TER Accept the Control as effective o If population error rate is more than TER Do more testing to get SER lower or Conclude control isn’t effective Do more substantive testing |
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Basic Steps in statistical plan (Testing Controls)
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1. Determine objectives of plan
2. Define population 3. Determine acceptable levels of sampling risk 4. Define deviation conditions or materiality level 5. Calculate the sample size 6. Select sampling approach 7. Take sample 8. Evaluate sample 9. Document sampling procedures |
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Systematic Sampling
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Every certain # of a population is selected
Population needs to be randomly ordered Primary advantage |
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Sequential Sampling
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Also called “Stop or Go” Sampling
Each audit step determines the next step |
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Discovery Sampling
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Audit is testing an area that is so crucial, then zero
population errors can be tolerated o Any phony employees on payroll? |
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Block Sampling
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Easy to implement, but worst method of sampling
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Monetary Unit Sampling (MUS)
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Approach to variables sampling that uses attribute sampling methods to estimate monetary amounts
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Test Binary; Yes/No; Error/No error questions (Used to test the effectiveness of controls b/c it can estimate a rate of occurrence of control deviations in population)
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Attribute Sampling
Examples include: 1. Billing 2. Voucher processing 3. Payroll 4. Inventory pricing |
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Examples of Random-based selections
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1. Random Sampling
2. Stratified random sampling 3. Monetary-unit sampling 4. Systematic sampling |