A3-M7-Sampling, Part 1

Erroneously concluding that an account balance is MM is an example of incorrect rejection.

If the actual DR in the population exceeds the maximum DR based on the sample, CR will be understated, b/c the control will be less effective than sample results would indicate.

By using statistical sampling, the auditor can quantify SR to assist in limiting it to a level considered acceptable.

The risk of incorrect acceptance is the risk that the sample supports the conclusion that the recorded account balance is not MM when in fact it is MM (sample results fail to identify an existing MM).

The risk of incorrect acceptance is an aspect of SR the auditor considers when designing an audit procedure where sampling is used. This is considered before any potential misstatement is identified.

If an auditor believes an account balance is MM but it was not MM, it is the risk of incorrect rejection. In other words, the sample results mistakenly indicate a MM.

The EDR of the population to be tested is one of the items the auditor considers when planning an audit sample for TOCs.

Attribute sampling is used to test controls. Controls often relate to authorization, validity, completeness, accuracy, appropriate classification, accounting in conformity with GAAP, and proper period. Account balance, amount, valuation, presentation, and disclosure are more likely to relate to substantive tests.

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Nonsampling risk includes all aspects of audit risk that are not due to sampling. Examples —> auditor selecting inappropriate auditing procedures, using inappropriate audit evidence, and failure by the auditor to recognize misstatements in documents examined.

If the auditor is not able to test the control as planned, nor perform alternative procedures, the auditor should treat the item as a deviation from the prescribed control in their documentation.

Population size is not an issue in determining sample size, provided the population is relatively large.

In both statistical and nonstatistical sampling, the sample size is determined based on the sampling risk the auditor is willing to accept based on their professional judgment.

UDR = sample DR + allowance for sampling risk