Audit Sampling Techniques Quiz

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

Which method must be used for sample selection in statistical attributes sampling?

Aesthetic sampling

Non-probabilistic sampling

Judgmental sampling

Simple random sampling (correct)

What is the key purpose of testing the information on the aged trial balance before any other tests?

To ensure the accuracy of recorded sales

To verify that it agrees with the general ledger (correct)

To evaluate the risk of misstatement

To confirm customer balances

Which of the following is NOT one of the eight balance-related audit objectives for accounts receivable?

Existence

Completeness

Accuracy

Integrity (correct)

What do auditors calculate to generalize from a sample to a population in attributes sampling?

Upper precision limit (CUER) Signup and view all the answers

Which aspect is evaluated to ensure that existing accounts receivable are included in the audit?

Completeness Signup and view all the answers

What is the primary purpose of audit sampling?

To select and evaluate a portion of the population that is representative. Signup and view all the answers

What does it mean for a sample to be representative?

The characteristics of the sample mirror the characteristics of the population. Signup and view all the answers

What is sampling risk?

The possibility that the sample is not representative of the entire population. Signup and view all the answers

Which method can auditors use to control sampling risk?

Adjust sample size and use an appropriate selection method. Signup and view all the answers

Nonsampling risk can be attributed to which of the following factors?

Auditor's failure to recognize exceptions and ineffective procedures. Signup and view all the answers

Which of the following best describes statistical sampling?

A structured approach that uses mathematical techniques to determine sample size and selection. Signup and view all the answers

What is the risk associated with nonsampling errors?

They are related to the auditor's mistakes or inadequate audit methods. Signup and view all the answers

What is a significant challenge associated with haphazard sample selection methods?

They may introduce unintentional bias due to the auditor's training. Signup and view all the answers

When using block sample selection, how are items chosen?

The first item in a block is selected, followed by all subsequent items in that block. Signup and view all the answers

What term describes the percentage of items in a population that contain a specific characteristic of interest?

Occurrence rate Signup and view all the answers

Which of the following is NOT a type of exception auditors are interested in?

Arbitrary monetary gains Signup and view all the answers

What is a fundamental constraint of nonprobabilistic sample selection methods?

They do not meet the technical requirements for probabilistic selection. Signup and view all the answers

How does an auditor typically estimate the exception rate in a population?

By evaluating the exception rate from the sample and projecting it to the population. Signup and view all the answers

In block sample selection, which of the following is a method to select the sample?

Selecting fixed block sizes before determining which items to pick. Signup and view all the answers

What does the term 'exception rate' specifically refer to in auditing?

The estimated percentage of items in a population that do not meet specified controls. Signup and view all the answers

Which of the following statements about haphazard sample selection is false?

It is a completely random and unbiased selection method. Signup and view all the answers

Which method guarantees that every possible combination of population items has an equal chance of being selected?

Simple random sample selection Signup and view all the answers

What is a critical factor that auditors must consider when using probabilistic sampling methods?

Statistical evaluation methods must be applied to sample results. Signup and view all the answers

Which of the following options describes systematic sample selection accurately?

Implementing a fixed interval based on population size and sample size. Signup and view all the answers

What is the purpose of tracing shipping documents to duplicate sales invoices?

To test the controls over the sales process. Signup and view all the answers

Which sampling method does not require strict adherence to probabilistic requirements?

Haphazard sample selection Signup and view all the answers

Which method should the auditor use to select the sample items for an audit?

Any combination of probabilistic or nonprobabilistic methods. Signup and view all the answers

What is the primary limitation when evaluating a nonprobabilistic sample using statistical methods?

It can lead to inaccurate estimations due to selection bias. Signup and view all the answers

What must be calculated first in systematic sample selection to determine which items to choose?

The sampling interval size. Signup and view all the answers

What is a key reason for auditors not informing clients of selected sample items too far in advance?

To minimize the risk of client altering sample items. Signup and view all the answers

In the context of statistical sampling, what is meant by sampling risk?

The risk of drawing incorrect conclusions from the sample. Signup and view all the answers

When calculating the Sample Exception Rate (SER), what factors are considered?

Actual number of exceptions found divided by actual sample size. Signup and view all the answers

Which statement about documenting audit procedures is accurate?

Auditors can choose to document only exceptions found based on their preference. Signup and view all the answers

What distinguishes probability proportional to size sampling from other probabilistic sampling methods?

Item selection is based on the size of the item being sampled. Signup and view all the answers

What happens when nonstatistical sampling is employed in an audit?

The auditor cannot quantify the sampling risk accurately. Signup and view all the answers

What is a substantive test of transactions primarily aimed at assessing?

The validity and correctness of recorded transactions. Signup and view all the answers

In an audit, what is the importance of maintaining records of exceptions found during sampling?

It provides evidence for conclusions about the entire population. Signup and view all the answers

What typically characterizes tests of controls in an audit?

They focus on evaluating the design and operation of controls. Signup and view all the answers

What should auditors do if they have voided items in the original sample during an audit?

Replace voided items with additional samples. Signup and view all the answers

Study Notes

Audit Practice and Procedures II

Topic: Audit Sampling, Audit Testing, Sales and Collection Cycle
Week: Six
Course: Audit Practice and Procedures II
Institution: Commonwealth Caribbean (UCC)

Recap of Last Class

No specific information provided

Audit Sampling

Defined as the selection and evaluation of less than 100% of the audit population.
Aims to choose items representative of the whole population.
Auditors strive for representative samples, where characteristics of sampled items mirror the overall population.
However, auditors cannot definitively know if a sample is truly representative, even after complete testing.

Representative Samples

Representative samples are crucial for accurate inferences about the population.
Sampled items should mirror the characteristics of un-sampled items in the population.
Sample results can potentially lead to incorrect conclusions due to sampling error or non-sampling error.
Sampling risk and non-sampling risk are the two types of errors that can occur during the process

Sampling Risk

Risk of making an incorrect conclusion because the sample is non-representative of the population.
Inherent in sampling when fewer than all items are tested.
Controllable by sample size adjustment and proper sample selection and evaluation methods.

Non-sampling Risk

Risk of an incorrect conclusion due to causes unrelated to sample representativeness.
Caused by auditor's failure to recognize exceptions or employ ineffective audit procedures.

Statistical Versus Nonstatistical Sampling

Two broad categories of sampling methods.
Both involve planning, selecting the sample, and evaluating the results.
Purpose of planning is to ensure appropriate sampling risk and minimize non-sampling risks.
Selection involves deciding how to select from the population.
Evaluation draws conclusions based on audit tests.

Statistical Sampling

Uses mathematical rules to quantify sampling risk (measure) in planning and evaluating results.
Auditors can estimate sampling risk using a 95% confidence level (5% sampling risk).

Nonstatistical Sampling

Auditors do not quantify sampling risk.
Proper design and careful consideration of sampling factors (like statistical sampling factors) can produce effective results.

Probabilistic Versus Nonprobabilistic Sample Selection

Probabilistic methods involve randomly selecting items where each item has a known probability of inclusion in the sample. (Greater care required.)
Nonprobabilistic methods approximate random selection using methods that don't directly measure probabilities. (Often easier for auditors to apply)

Probabilistic Sample Selection Methods

Simple random sample selection
Systematic sample selection
Probability proportional to size sample selection

Nonprobabilistic Sample Selection Methods

Haphazard sample selection
Block sample selection

Sampling for Exception Rates

Used in tests of controls and substantive tests for transaction data.
Aiming to check if monetary errors are within tolerable limits.
Exception rate is the percentage of items with a specific characteristic or attribute of interest within a population.
Auditors interested in deviations, transaction misstatements, and account balance misstatements.

Exception Rate in a Sample

Used to estimate the exception rate within a population.
The auditor's "best estimate" of the exception rate in the population, encompassing deviations and monetary errors.

Applying Statistical and Nonstatistical Sampling in Practice and Sample Selection Methods

Auditors may select either method (statistical or non-statistical).
Crucial that either approach is applied with due care.
Statistical sampling requires a probabilistic sample to accurately measure sampling risk.
Non-statistical methods may be just as effective with proper factors considered.
Probabilistic methods include simple random, systematic, and probability proportional to size selections.
Nonprobabilistic methods include haphazard and block selections.

Plan the Sample

State audit test objectives.
Decide if audit sampling is necessary.
Define attributes/exception conditions.
Define population.
Define sampling unit.
Specify tolerable exception rate (TER).
Specify acceptable risk of overreliance.
Estimate population exception rate (EPER).
Determine the initial sample size.

Select the Sample and Perform Audit Procedures

Select the sample
Perform the audit procedures to examine sample items for accuracy and agreement with attributes.
Main differences are probabilistic vs. non-probabilistic selection methods

Evaluate the Results

Generalize from sample to population.
Analyze exceptions.
Decide on acceptability of the population.

Methodology for Designing Tests of Details of Balances

Auditors must follow eight balanced-related audit objectives when doing receivable tests.
These objectives apply to all account types, but will be examined through different objectives for receivables for detailed testing.
Accounts for all aspects of accounts receivable need to be validated.

Accounts Receivable, Test of Details

Evaluate if accounts receivables are properly recorded and present. (Accuracy, Completeness, Cutoff, Realizable value, Rights)
Confirm with third parties involved with receivables (customers) using methods like positive and negative confirmations
Auditors should use caution and test accounts receivables and consider factors like errors in accounting, internal controls, significant exceptions, and others

Sampling Decisions

Factors in determining sample size for confirming accounts receivable include materiality of performance, inherent risks, control risks, risks from other substantive tests, and type of confirmation used.
Sample size is adjusted for these factors and the specific account receivable test

Timing

Ideally, confirmations are performed close to the balance sheet date to verify the accounts receivable balance directly, without needing inference about transactions since the date.
Interim dates may be used when time constraints are a factor.

Verification of Addresses and Maintaining Control

Verify addresses and email addresses provided by the customer to ensure the addresses are valid, or if a post office box or an email address is inconsistent with customer Web site addresses
Auditors should control confirmations until received to prevent fraud or alteration by the client.

Positive Confirmations

Communication to debtors requesting confirmation about the balance if correct, or if not to specify the discrepancy.
Blank forms also exist in which the debtor can specify the correct balance. This type is favored as it tends to achieve higher response rates.
Individual invoices can be confirmed, as opposed to confirming the whole receivables balance. This is also favoured to achieve higher response rates.

Negative Confirmations

Communication to debtor requesting only confirmation if not correct.
Often considered less reliable than positive confirmations, because response may not reflect the full picture
Still useful to include some negative confirmations to achieve higher response rates.

Types of Sampling Decisions

Different sampling categories are used depending on the sample type selection (statistical vs. non) method used
Use of statistical sampling requires precise considerations of factors to yield an acceptable result.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Description

Test your knowledge on various aspects of audit sampling techniques. This quiz covers topics such as sample selection methods, audit objectives, and the distinction between sampling and nonsampling risk. Perfect for students or professionals looking to refresh their understanding of audit practices.