Cia Part I - Su 5.2 Sampling A Population

Front 1

How is the statement called that is hoped or expected to be true instead of the null hypothesis?

Back 1

alternative hypothesis

Front 2

How would a null hypothesis and the alternative hypothesis be called if one wanted to prove that an error rate within a controll is < 1% ?

Back 2

null hypothesis: error rate >= 1%

alternative hypothesis: error rate < 1%

Front 3

How is the characteristic the IA wants to estimate about the population called?

Back 3

attribute of interest

Front 4

What is another expression for sample item?

Back 4

sample unit

Front 5

What type of risk is hazard risk? Provide example!

Back 5

insurable risk (e.g. natural disasters, impairments of physical assets)

Front 6

How is audit risk defined?

Back 6

risk that IA issues an incorrect opinion on financial statements

Front 7

How is audit risk calculated?

Back 7

audit risk (AR)= inherent risk (IR) x control risk (CR) x detection risk (DR)

Front 8

How can the audit risk model be illustrated?

Back 8

Front 9

What is inherent risk?

Back 9

risk of misstated financial statements without any risk mitigating controls

Front 10

What is control risk?

Back 10

risk that risk mitigating controls will fails to prevent misstated financial statements

Front 11

What is detection risk?

Back 11

risk that IA fails to detect a significant error in the financial statements through test and analysis

Front 12

Which risk is set?

Back 12

audit risk

Front 13

How large is audit risk set so that an audit provides a high level of assurance?

Back 13

5%

Front 14

Which risks are assessed?

Back 14

inherent risk, control risk

Front 15

Which risk is determined?

Back 15

DR = AR/(IR x CR)

Front 16

What 2 other types of risk does detection risk comprise?

Back 16

"sampling risk
– non–sampling risk

Front 17

"
What is the relation between sampling risk and confidence level?

Back 17

Sampling risk = 1 minus confidence level

Front 18

What is sampling risk?

Back 18

– the risk that the sample, even though it was chosen properly, does not represent the population as the sample, by chance, has proportionately more errors than the population

Front 19

How does sampling risk relate to sample size?

Back 19

the smaller the sample size, the larger the sampling risk

Front 20

How can sampling risk be overcome?

Back 20

by increasing the sample size

Front 21

What effect does an increase in the assessed control risk have on detection risk, sampling risk, confidence level, and sample size?

Back 21

"detection risk = audit risk / (inherent risk x control risk)
Increase in control risk –> decrease in detection risk –> decrease in sampling risk –> increase in confidence level (=1 – sampling risk) –> increase in sample size

Front 22

which types of risk does sampling risk of variables and attributes sampling comprise?

Back 22

"variables:
– risk of incorrect acceptance of financial statements (beta risk; type II error)
– risk of incorrect rejection of financial statements (alpha risk; type I error)
control/attribute:
– risk of assessing control risk too low (beta risk; type II error)
– risk of assessing control risk too high (alpha risk; type I error)

Front 23

How is alpha risk defined and when can it only occur?

Back 23

- correct statements are indicated as incorrect by the sampling result

- it only occur when the misstatement is less than material

Front 24

How is beta risk definedand when can it only occur?

Back 24

- incorrect statements are indicated as correct by the sampling result

- it only occur when the misstatement is more than material

Front 25

When is alpha risk the largest?

Back 25

just below the material misstatement (MM) andequals (at the limit of the material misstatement) one minus beta risk at MM

Hint 25

Front 26

When is beta risk the largest?

Back 26

at the amount when a material misstatement (MM) starts to begin

Hint 26

Front 27

To what does the risk of incorrect rejection/risk of assessing control risk too high/alpha risk/type I error relate?

Back 27

sampling efficiency

Front 28

To what does the risk of incorrect acceptance/risk of assessing control risk too low/beta risk/ type II error relate?

Back 28

sampling effectiveness

Front 29

What is more crucial: sampling efficiency or sampling effectiveness?

Back 29

sampling effectiveness

Front 30

How does the risk of assessing control risk too low influence the sample size?

Back 30

the larger the IA allows the risk of assessing control risk too low to be, the smaller the sample size may be (since the confidence level decreases as well)

Front 31

"
What is nonsampling risk?

Back 31

"– human errors that can be reduced or eliminated or
– the risk that the auditor's conclusion is inappropriate for any other reason, e.g. the application of inappropriate procedures or the failure to recognise a misstatement

Front 32

"
When does a larger sample not represent a population more than a smaller sample?

Back 32

when the larger sample is selected in a biased way

Front 33

Of which two elements does statistical sampling consist?

Back 33

"– statistical sample selection
– projection to the population

Front 34

"
What shall the statistical sample selection ensure?

Back 34

that the sample is representing the population

Front 35

Which 2 criteria must be met so that a sample can be considered representative?

Back 35

"– the probability of every population item being selected is > 0
– the probability of every population item being selected is EQUAL or KNOWN

Front 36

"
What shall the projection to the population allow?

Back 36

to conclude whether sampling result may be projected to the whole population

Front 37

Which sample selection methods are statistical?(3)

Back 37

"– simple random sampling
– systematic/interval sampling
– stratified sampling

Front 38

"
What is the characteristic of the size of a random sample with regard to the population size?

Back 38

"– above a certain population size, the sample size does not increace (the absolute size of the sample affects the precision more than its size relative to the population)

Front 39

"
When is simple random sampling the most appropriate method for drawing a sample?

Back 39

when population items are consecutively numbered (e.g. account payable checks)

Front 40

When is simple random sampling appropriate with regard to the detection of fraud?

Back 40

if the extent of fraud is to be estimated rather than to determine if fraud has occurred in the first place

Front 41

How is randomness of a simple random sample ensured?

Back 41

– randomness is ensured by selecting the sample using random number tables

Front 42

What does a random number sample ensure?

Back 42

that the sample is unbiased as each sampling unit and each combination of sampling unit has an equal and nonzero probability to be selected

Front 43

What is a disadvantage of simple random sampling over systematic sampling?

Back 43

there is a chance that the sample items drawn using simple random sampling are clustered; this is avoided at systematic sampling as the population is evenly sampled

Front 44

Is a sample selected using random numbers an absolute representative sample?

Back 44

no, sampling risk and sampling error allow to estimate the probability that a random sample is not representative

Front 45

What is the finite population correction factor used for in simple random sampling?

Back 45

for adjusting the achieved precision in cases where the sample size exceeds 5% of the population (the larger the sample size, the narrower the precision)

Front 46

What does the systematic interval sampling plan assume?

Back 46

– items are arranged randomly in the population

Front 47

What effect does a not randomly distributed population have on systematic sampling and how may this effect be overcome?

Back 47

the results will be biased. This bias may be overcome by taking repeated systematic sample items, each with a random start

Front 48

How is systematic sampling called as well?

Back 48

interval sampling

Front 49

How does systematic sampling work for a population of 1000 items?

Back 49

"– select a sample size e.g. 35
– 1000/35=28.57
– select randomly a number between 1 and 28 as the first sample item
– select every 28th item

Front 50

"
How must the starting point in systematic sampling be selected to give each item of the population an equal chance of selection?

Back 50

randomly

Front 51

How is the random starting point in systematic sampling selected (sampling interval:28)?

Back 51

from a table of random digits between one and 28

Front 52

When is systematic sampling most appropriate?(2)

Back 52

"– sampling units are not numbered
– matching of sampling unit against random numbers is too cumbersome

Front 53

"
If a certain pattern in the population is present in systematic sampling, how should the size of the interval be selected?

Back 53

so that it is not a multiple of the population pattern

Front 54

What can be checked using systematic sampling?

Back 54

– if a control was operated throughout an entire year

Front 55

Which sample selection methods are nonstatistical?(3)

Back 55

"– haphazard
– judgemental sampling
– cluster block

Front 56

"
What is judgmental sampling?

Back 56

selecting the size of a sample and the items whithin the sample based on the auditor's subjective judgment

Front 57

When is judgmental sampling most appropriate?

Back 57

when reasons exist for focusing audit attention on specific transactions, e.g. large mortgages

Front 58

How does cluster block sampling work?

Back 58

– selects groups of items as the sampling units rather than individual items (e.g all cash payments for May and September)

Front 59

What is cluster block sampling most appropriate for?

Back 59

for performing year–end cutoff tests

Front 60

What is the disadvantage of cluster block sampling?

Back 60

– variability of items within the clusters is not representative

Front 61

What is the advantage of cluster block sampling?

Back 61

– avoids the need to assign random number to individual items in the population

Front 62

What is the purpose of stratifying a sample?

Back 62

to reduce variation in order to be able to use a smaller sample than would be required without stratification

Front 63

When is cluster block sampling most appropriate?

Back 63

when each aggregate sampling group is representative of the entire population

Front 64

What is the difference between stratified sampling and cluster block sampling?

Back 64

stratified sampling is used to give special emphasis to certain categories in the population (skewed or unusual values, e.g. with a high variability i.e. standard deviation)

Front 65

How useful is cluster block sampling if a built–in pattern is expected in the population?

Back 65

not at all as cluster block sampling does not overcome patterns

Front 66

What does statistical sampling provide in contrast to nonstatistical sampling?

Back 66

"– precision/sampling error (how closely the sample represents the population)
– confidence level/sampling risk (percentage of times the sample will adequately represent the population)

Front 67

By which range around the projected population paramter is precision represented?

Back 67

– the range around the projected population parameter (projected from the sample parameter of a statistically selected sample) that will contain the true population value at a given confidence level

Front 68

What kind of uncertainty does precision represent?

Back 68

the uncertainty in the projection of a sample result to thepopulation (i.e. uncertainty due to not observing the whole population but only a fraction of it)

Front 69

What are the other expressions for precision?(4)

Back 69

"– confidence interval
– sampling error
– margin of error
– allowance for sampling risk

Front 70

"
What does the confidence level express?

Back 70

the level of reliability that a selected sample is representative for the whole population (i.e. the percentage of confidence intervals constructed around the projected population parameter (projected from the sample parameter of a statistically selected sample) that will contain the true population value)

Front 71

If based on a sample a routine check was performed correctly in 88% of the time what do a 95% confidence level and a 5% precision mean in that context?

Back 71

the probability is 95% that real percentage of the routine checks carried out correctly lies between 83% and 93%

Front 72

How is the confidence level called as well?

Back 72

– reliability

Front 73

On what does the size of precision mainly depend for a given confidence level?

Back 73

on the sample size

Front 74

The larger the sample size, the...

Back 74

the smaller the precision

Front 75

Which sampling factor does the IA control and which determine, reliability or precision?

Back 75

- IA determines the reliability (confidence level) according to the audit risk model

- IA controls precision by setting the maximum tolerable error

Front 76

To what is the expected value of a random sample of any size equal?

Back 76

the population mean

Front 77

What may the results of prior years' samplings be used for?

Back 77

for obtaining preliminary information on the population sampled (e.g. variability)

Front 78

Are pilot samples discarded after being used to determine the variability of error in the population in order to calculate the sample size?

Back 78

no, pilot samples are used as a part of the total sample