Audit Sampling Basics
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Questions and Answers

What effect does using a higher confidence level have on the sample size when testing for errors in a large population?

  • The sample size will remain the same
  • The sample size will decrease
  • The sample size will increase (correct)
  • The sample size will depend on the auditor’s discretion

In audit sampling, which situation is considered a deviation from control?

  • A ledger entry is posted at the wrong amount
  • A transaction is recorded in the wrong period
  • A document is missing required signatures (correct)
  • A transaction is recorded correctly

What constitutes the risk of incorrect rejection in audit sampling?

  • The auditor fails to identify a material misstatement
  • The auditor selects too few items for testing
  • The auditor concludes that the sample does not support the audit conclusion, when, in fact, it does (correct)
  • The auditor chooses items that are not representative of the population

Which action is most appropriate for an auditor to reduce sampling risk?

<p>Increase the sample size (D)</p> Signup and view all the answers

What must an auditor do if a deviation rate is detected that exceeds expectations under PSA 530?

<p>Increase the sample size (B)</p> Signup and view all the answers

What does 'tolerable error' signify in audit sampling?

<p>The maximum error a sample can have without affecting the audit conclusion (C)</p> Signup and view all the answers

Which sampling technique involves selecting items in a systematic manner, such as every nth item?

<p>Systematic sampling (C)</p> Signup and view all the answers

What key consideration should an auditor keep in mind when applying audit sampling in the Philippines?

<p>The local regulatory framework (C)</p> Signup and view all the answers

What is the primary reason for increasing the sample size during an audit?

<p>To gather more reliable evidence (C)</p> Signup and view all the answers

In stratified sampling, how is the population divided?

<p>Into equal groups based on value or characteristics (C)</p> Signup and view all the answers

What does the 'risk of overreliance' indicate?

<p>Accepting a sample as sufficient despite its inadequacy (A)</p> Signup and view all the answers

Which sampling method relies on auditor judgment to select items?

<p>Non-statistical sampling (B)</p> Signup and view all the answers

What is the main risk associated with audit sampling?

<p>Failing to detect material misstatements in the sample (D)</p> Signup and view all the answers

Which of the following would be considered an appropriate population for sampling in an audit?

<p>All sales transactions recorded during the year (B)</p> Signup and view all the answers

What does 'sampling error' refer to in the context of auditing?

<p>The discrepancy between the sample estimate and the true population parameter (C)</p> Signup and view all the answers

When choosing sample size, what is a key factor auditors must consider?

<p>Confidence levels and tolerable misstatement (A)</p> Signup and view all the answers

What does the concept of financial materiality refer to in auditing?

<p>The impact of transactions on financial statements (D)</p> Signup and view all the answers

When would an auditor most likely choose random sampling?

<p>When the population is homogeneous and equal representation is desired (B)</p> Signup and view all the answers

In what scenario would judgmental sampling be used by an auditor?

<p>When the auditor wants to apply criteria based on personal judgment (A)</p> Signup and view all the answers

What is a key reason for performing a sample size calculation in auditing?

<p>To ensure statistical reliability of the sample (C)</p> Signup and view all the answers

Which best describes a representative sample in audit practices?

<p>A sample that is selected to mirror the population's key characteristics (B)</p> Signup and view all the answers

What does sampling risk entail in the context of auditing?

<p>The potential for an unrepresentative sample leading to unreliable results (C)</p> Signup and view all the answers

What is typically tested when using monetary unit sampling (MUS)?

<p>Transactions categorized on the basis of their monetary amounts (B)</p> Signup and view all the answers

What action would an auditor likely take if sample results show a higher deviation rate than expected?

<p>Adjust the subsequent audit strategy accordingly (B)</p> Signup and view all the answers

What is the main advantage of providing a measurable way to calculate sampling risk in auditing?

<p>It provides a measurable way to calculate sampling risk. (A)</p> Signup and view all the answers

Which characteristic best describes judgmental sampling in an audit?

<p>It is a process guided by the auditor’s professional judgment. (B)</p> Signup and view all the answers

In monetary unit sampling (MUS), the key risk of incorrect rejection is identified as:

<p>The risk of misidentifying a true statement as false. (C)</p> Signup and view all the answers

How is the sample size for substantive testing generally determined by an auditor?

<p>After evaluating the materiality of transactions. (B)</p> Signup and view all the answers

Which sampling technique should be employed to primarily target transactions with the highest dollar amounts?

<p>Stratified sampling. (A)</p> Signup and view all the answers

In an audit, what type of sample might be obtained from all transactions?

<p>A random sample encompassing all types of transactions. (D)</p> Signup and view all the answers

What does the term 'confidence interval' refer to in statistical sampling?

<p>The expected range for the population’s true value at a set confidence level. (B)</p> Signup and view all the answers

Which method is least likely to lead to systematic errors in sample selection?

<p>Simple random sampling. (D)</p> Signup and view all the answers

What is the most appropriate method for selecting a sample from a transaction list?

<p>Selecting every 10th item from a list of transactions (C)</p> Signup and view all the answers

What should an auditor do if errors are detected at a rate higher than expected during sampling?

<p>Increase the sample size and perform further testing (B)</p> Signup and view all the answers

In the Philippine audit setup, which sampling method is deemed appropriate?

<p>Use a random sample that covers different periods, types of transactions, and accounts (A)</p> Signup and view all the answers

When is audit sampling not deemed appropriate according to PSA 530?

<p>When the auditor intends to review all items individually (B)</p> Signup and view all the answers

Which of the following does not provide a valid reason for using audit sampling?

<p>The auditor is conducting a full review and does not need to sample transactions (A)</p> Signup and view all the answers

What risk should an auditor consider when applying audit sampling?

<p>The sample is not representative of the population (C)</p> Signup and view all the answers

What factor is associated with sampling error in audit testing?

<p>Insufficiently defining the audit population (A)</p> Signup and view all the answers

What is the implication if the sample does not provide enough evidence to conclude about the entire population?

<p>Further testing is necessary to assess the population (C)</p> Signup and view all the answers

After finding a minor error in a sample of payroll transactions, what should the auditor do next?

<p>Increase the sample size and retest the population (C)</p> Signup and view all the answers

What should the auditor do after identifying multiple misstatements in a stratified sample targeting high-value transactions?

<p>Increase the sample size and perform further testing to confirm the findings (A)</p> Signup and view all the answers

In the situation where a bank's auditor finds 2 loans with documentation errors from a sample, what is the most appropriate step?

<p>Consider increasing the sample size for further examination (A)</p> Signup and view all the answers

What does it mean if an auditor concludes that a population is materially misstated based on their sample errors?

<p>The findings from the sample cannot be reliably projected to the full population (C)</p> Signup and view all the answers

What strategy should an auditor implement when there's a finding of a minor error in a statistical sample?

<p>Consider expanding the sample size for further assurance (D)</p> Signup and view all the answers

When multiple misstatements are identified in high-value accounts payable transactions, what should be the auditor's immediate reaction?

<p>Investigate those specific transactions for additional insight (B)</p> Signup and view all the answers

What might indicate a need for more rigorous sampling procedures in auditing?

<p>The presence of multiple misstatements or anomalies (C)</p> Signup and view all the answers

Flashcards

Effect of higher confidence level on sample size

A higher confidence level in an audit sampling leads to a larger sample size needed to achieve the desired level of assurance that the results accurately represent the entire population.

Audit Sampling Deviation

A deviation in audit sampling is an instance where a control procedure fails to prevent or detect a misstatement.

Risk of Incorrect Rejection

The risk that the auditor concludes the sample does not support the audit conclusion, when it actually does.

Reducing sampling risk

Increasing the sample size directly reduces sampling risk.

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High deviation rate consequence

If an auditor detects a deviation rate higher than expected in a sample, they should increase the sample size to gather more evidence.

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Tolerable Error in Sampling

The maximum amount of error acceptable in a sample without affecting the overall audit conclusion.

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Systematic Sampling

A sampling technique where items are selected in a consistent manner from a defined interval.

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Philippine Audit Considerations for Sampling

Keywords to consider when applying audit sampling - no details provided.

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Financial Materiality

The importance of a transaction or amount in the context of a financial statement.

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Random Sampling

A method of selecting samples where every item in the population has an equal chance of being chosen.

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Judgmental Sampling

The auditor selects sample items based on their professional judgment and expertise.

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Sample Size Calculation

Determining the appropriate number of sample items to test for accuracy and reliability.

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Representative Sample

A sample selected in a way that accurately reflects the characteristics of the entire population.

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Sampling Risk

The possibility that the sample chosen doesn't accurately represent the population.

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Monetary Unit Sampling (MUS)

Sampling method focusing on the monetary value of transactions, rather than individual items.

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Deviation rate

Percentage of sampled items that do not conform to established criteria or expectations.

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Audit Sampling

A technique used by auditors to test a portion of a population rather than examining every item.

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Stratified Sampling

Dividing a population into subgroups based on characteristics.

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Risk of Overreliance

The risk of believing a sample is representative when it's not, leading to undetected errors.

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Non-statistical Sampling

Selecting sample items based on auditor judgment, not random chance or statistical methods.

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Sampling Error

The difference between the sample's result and the actual result of the whole population.

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Appropriate Population for Sampling

The entire set of items being audited, such as all transactions in a given period.

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Increasing Sample Size

Selecting more items to improve the reliability of audit evidence.

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Population Divided in Stratified Sampling

Groups based on criteria, such as value or characteristic, not chosen randomly.

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Risk of Incorrect Rejection in MUS

Probability that the auditor concludes a population is misstated, when it isn't. Basically, a false negative.

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Sample Size for Substantive Testing

The auditor determines the appropriate sample size based on the materiality of the transactions. Larger materiality means a bigger sample.

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Random Sampling in Financial Audits

Every transaction has an equal chance of being selected for the audit sample.

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Confidence Interval in Sampling

Range within which the population's true value is expected to lie with a certain level of certainty. Wider range, less precise.

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How does confidence level affect sample size?

A higher confidence level demands a larger sample size to guarantee the audit results accurately represent the whole population.

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Sampling in Auditing

A technique to review a portion of a population to draw conclusions about the whole. It's used when examining large datasets like financial records.

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Why Sample?

Auditors sample because reviewing everything is too time-consuming or expensive. This allows them to get a good idea of overall accuracy without examining every item.

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Types of Sampling

Auditors can use different methods to choose their sample, like random selection, systematic sampling, or judgmental sampling, depending on the specific audit objective.

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High Deviation Rate?

If many errors are found in a sample, the auditor should increase the sample size to get a more accurate picture of the whole population.

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When is Sampling NOT appropriate?

Audit sampling isn't used when the population is small enough to review everything individually. For individual review, each item is assessed.

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What to Consider when Sampling

When deciding how to sample, consider the risk of the sample not representing the whole population, the size of the population, and the desired level of assurance.

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Sampling is NOT a Full Review

Sampling shouldn't be mistaken for a thorough review of every item. It's used to gain an understanding of the overall situation.

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What to do with a minor error?

When a minor error is found during testing a sample of 50 items from a population of 1,000 payroll transactions, increase the sample size and retest the population to ensure accuracy.

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Multiple misstatements in a sample

If several misstatements (like duplicate payments or unapproved invoices) are discovered in a stratified sample of high-value transactions, increase the sample size and perform further testing to confirm the findings.

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Errors in loan agreements

If two errors are found in a randomly sampled set of 50 loans from a population of 500, the auditor should increase the sample size and conduct further testing to assess the potential extent of the errors.

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What to do with a small sample?

If a small sample size reveals misstatements, the auditor should not ignore them. Instead, they should increase the sample size and perform further testing to confirm the findings.

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Material Misstatement

An error that is significant enough to influence the decisions of financial statement users. It is a critical consideration when evaluating audit findings and determining the appropriate audit opinion.

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Statistical Sampling

A method of selecting a sample of items from a population, using statistical techniques to ensure the sample is representative and the results can be generalized to the entire population.

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Audit Opinion

The auditor's professional judgment on the fairness of the financial statements. It can be unqualified (no issues), qualified (minor issues), adverse (major issues), or disclaimer (insufficient evidence).

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Study Notes

Audit Sampling

  • Audit sampling is selecting a representative sample from a population for testing.
  • The goal is to draw conclusions about a population based on testing a sample.
  • Population refers to all transactions or items being audited.
  • Statistical sampling uses random selection; non-statistical sampling uses judgment.
  • Statistical sampling allows quantifying risk of incorrect conclusions through confidence level and sampling error.
  • Audit sampling's goal is to ensure the sample represents the entire population accurately.
  • Philippine auditing standards use random and judgmental sampling.

Key Concepts

  • Sampling Risk: The risk that the sample does not represent the population accurately. Incorrect conclusions are drawn.
  • Non-sampling Risk: Errors that occur due to human error, inadequate procedures, or misunderstanding the sampling method.
  • Tolerable Misstatement: The maximum error the auditor is willing to accept without altering conclusions in the audit.
  • Sample Size: The number of items selected from the population for testing. Factors include tolerable misstatement and sampling risk.
  • Confidence Level: The probability that the sample will be representative of the population.
  • Sampling Error: Difference between the sample estimate and the actual population characteristic.
  • Deviation Rate: The percentage of items in the sample that do not comply with criteria set.
  • Monetary Unit Sampling (MUS): Focuses on high-value items in a population, assuming higher values are more likely to be misstated.
  • Judgmental Sampling: Auditor uses judgment to select sample items, usually based on the materiality of items.
  • Stratified Sampling: Population is divided into subgroups, then random samples are drawn. Appropriate when the population has distinct characteristics.
  • Systematic Sampling: Items are selected based on a fixed interval. Every nth item is selected from a numbered list.

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Description

This quiz delves into the fundamentals of audit sampling, exploring its methods and objectives. It covers key concepts such as sampling risk, non-sampling risk, and tolerable misstatement, critical for understanding how audits are conducted effectively. Test your knowledge on Philippine auditing standards and the significance of representative sampling.

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