Attribute Sampling: Module E

What is audit sampling?

The selection and evaluation of less than 100% of the items in a population of audit relevance.

What is sampling risk?

The possibility that the sample drawn is not representative of the population.

What does Type 1 Error (Risk of Incorrect Rejection) signify?

The risk that the sample incorrectly concludes that a control is not operating effectively.

What does Type 2 Error (Risk of Incorrect Acceptance) signify?

The risk that the sample incorrectly concludes that a control is operating effectively when it is not.

What are the three important factors in determining sample size?

Sampling risk, tolerable rate of deviation, and expected population deviation rate.

What is the relationship between sampling risk and confidence level?

1 - Sampling Risk = Confidence Level.

What is a precision interval (confidence interval)?

A range around the sample estimate that likely includes the true population value.

In audits, when is attribute sampling most commonly used?

To estimate the proportion of a population that possesses a specific characteristic, often for tests of controls.

What is the purpose of determining test objectives in attribute sampling?

To evaluate the operating effectiveness of the internal control.

What are control deviation conditions?

Departures from adequate performance of internal control.

What is the desired confidence level generally set at in auditing?

Typically set at 90% or 95%.

What is the tolerable deviation rate?

The maximum deviation rate from a prescribed control that is still considered effective.

What does the expected population deviation imply for sample size?

A larger expected population deviation rate increases the necessary sample size.

What does random number selection ensure in sampling?

Every item in the population has an equal chance of being selected.

What is systematic selection in sampling?

Selecting items based on a calculated sampling interval.

How is the sample deviation rate calculated?

Sample Deviation Rate = # of deviations / sample size.

What does it mean if the upper deviation rate exceeds the tolerable deviation rate?

It indicates a failure in the internal control testing.

What should an auditor do if many deviations are detected early in testing?

Consider stopping the test to reassess the control risk.

What happens to sample size when the population size is small (less than 500)?

The sample size decreases.

What should be done with voided or unused documents in a sample?

They should be replaced with new sample items unless unusual items are found.

What is the main goal of substantive testing?

To assess the validity of a recorded balance or transaction.