Self made CH.8 & 9

What is sampling?

applying audit procedures to less than 100 percent of items in a population to draw a conclusion about the whole population.

What is sampling risk?

risk that sampling may not accurately represent the overall population.

-auditors conclusion differs from what examining the entire population would show

What is non-sampling risk

Risk from auditor error. drawing incorrect conclusions.

-failure to recognize a misstatement, applying incorrect procedure.

What is a Type 1 error?

risk of incorrect rejection

-loss of efficiency

ex. conclude control deficiency when there isn’t one

What is a type II error?

Risk of incorrect acceptance

-increases audit risk/ threatens effectiveness

ex. concludes balance is fairly stated when it is materially misstated

What is attribute sampling?

estimates proportions of a population with a binary (yes/no) characteristic.

ex. “was this properly approved?”

used to test controls

What is classical variables sampling

Estimated numerical/dollar amount using statistical measures.

ex “is an account materially misstated?”

-used for substantive tests

What is Monetary Unit Sampling (MUS)?

Uses attribute sampling but for monetary amounts

-the sampling unit is the individual dollar

-increases probability of selecting higher-value items

-increases likelihood of detecting overstatements

Confidence level

Higher desired confidence calls for a larger sample

ex(90%,95%,99%)

Tolerable error/deviation rate

higher tolerable error leads to smaller sample size

Expected error/deviation rate

higher expected error leads to larger sample

population size

has relatively small effect on sample size for large population

What is the Random Selection method

matching items to a series of randomly generated numbers

What is the Systematic Selection method?

a random starting point, then selecting every nth items

-limitation is that it can bypass items with similar characteristics if the population has a pattern

What is the Haphazard Selection method?

a nonsystematic, non-random selection

What is the Block Selection method?

a series of contiguous items selected together

What is the ratio projection method for

uses proportion of misstatements in our sample to estimate the total misstatement in population

What is the difference estimation method?

averages misstatements in sample and projects average misstatements across entire population