Audit Sampling for Balances Flashcards

A set of vocabulary flashcards covering the key concepts, formulas, and terminology of Monetary Unit Sampling (MUS) and Variables Sampling as presented in Audit Sampling for Balances.

Monetary Unit Sampling (MUS)

The most common statistical sampling approach for tests of details of balances where each dollar value in the population has an equal chance of selection and larger transactions are more likely to be selected.

Acceptable Risk of Incorrect Acceptance (ARIA)

A variable used in sampling that represents the risk the auditor is willing to take of accepting a balance as materially correct when it is actually materially misstated.

Sampling Interval

The frequency with which items are selected from the population, calculated as $\frac{\text{Population}}{\text{Sample Size}}$.

Probability Proportional to Size (PPS)

A sample selection method where each dollar is treated as a sampling unit, ensuring that larger items have a higher probability of being selected for testing.

Basic Precision

The upper or lower error bound when no misstatements are found, representing the minimum allowance for sampling risk. It is calculated as $\text{Sampling Interval} \times \text{Confidence Factor}$.

Percentage Misstatement

The ratio used in MUS evaluation calculated as $\frac{\text{Recorded Value} - \text{Audited Value}}{\text{Recorded Value}}$.

Upper Misstatement Bound (UMB)

The calculated potential overstatement error resulting from sampling risk and identified misstatements.

Sample Size (MUS)

The number of items to be tested, calculated as $\frac{\text{Confidence Factor}}{\text{Tolerable Misstatement as \% of Population Value}}$.

Variables Sampling

Often called "classical" sampling, this method uses probability and the normal distribution to provide a range of estimates for true audited values or misstatements.

Difference Estimation

One of the three methods of estimation used in classical variables sampling.

Ratio Estimation

One of the three methods of estimation used in classical variables sampling.

Mean-per-unit Estimation

One of the three methods of estimation used in classical variables sampling.

Point Estimate

The projected misstatement in a population before adding an allowance for sampling risk.

Adjusted Upper Misstatement Bound

The final overstatement evaluation calculated as $\text{Initial UMB} - \text{Understatement Point Estimate}$.

Adjusted Lower Misstatement Bound

The final understatement evaluation calculated as $\text{Initial LMB} - \text{Overstatement Point Estimate}$.