audit chp 8

  1. Audit sampling
    the application of an audit procedure to less than 100 percent of the items within an account balance or class of transactions for the purpose of evaluating some characteristic of the balance or class
  2. Sampling Error
    If the auditor’s sample is not representative
  3. nonsampling error
    When the auditor makes incorrect inferences about the population for reasons other than sampling error
  4. nonsampling risk.
    IS the risk that non sampling error may occur. This can be reduced by proper training and proper supervision.
  5. Risk of over reliance is also called
    The risk of assessing control risk too low
  6. Risk of under reliance is also called
    The risk of assessing control risk too high.
  7. Under reliance occurs when...
    when the auditor believes an internal control is not operating effectively and decides not to rely on that control, when in fact the control is operating effectively and could be relied on.Note that, in practice, the actual deviation rate in the population
  8. Which is more critical? The risk of over reliance or under reliance?
    The risk of over reliance is more critical because it impacts the effectiveness of the audit. The auditor inappropriately reduces the amount of substantive tests to perform because he has over relied on controls.
  9. The risk of over reliance affects the..
    efficiency of the audit, because the auditor performs more substantive testing
  10. Tolerable Misstatement
    the materiality threshold for an individual account such as cash or accounts receivable
  11. When verifying account balances for substantive purposes.. if the auditor decides to accept the account balance as fairly stated, but the balance is actually misstated by more than the auditor’s tolerable misstatement
    The risk of incorrect acceptance
  12. if the auditor decides to reject the account as materially misstated but the actual misstatement is less than or equal to the auditor’s tolerable misstatement
    This is the risk of incorrect rejection.
  13. Which of the two sampling risks is more critical the risk of incorrect acceptance or rejection?
    The risk of incorrect acceptance is more critical of the two because it impacts the effectiveness of the audit..
  14. The risk of incorrect rejection affects the..
    efficiency of the audit only.
  15. When a single sample is used to perform both a test of control and a substantive procedure what is it called?
    It is called a dual purpose
  16. When testing accounting records for overstatements which way do we go?
    the direction of testing is from the accounting records (e.g., journals or transaction files) to the supporting documents
  17. Tests of detail of transactions are
    substantive procedures performed for the purpose of detecting material misstatements in transactions are used to determine whether transactions have been recorded and processed properly during the period under audit
  18. substantive procedures performed to detect material misstatements in account balances—referred to
    tests of details of balances, which are used to verify whether account balances are fairly stated as of a specific date.
  19. sampling unit
    is an individual element that makes up the population and is typically a document, an entry in a journal, or a line item in a listing of items in a master file such as inventory or accounts receivable
  20. When performing substantive procedures the auditors acceptable audit risk is equal to..
    The same as the auditors targeted level of detection risk..
  21. The less sampling risk the auditor is willing to accept
    the larger the sample size, they have an inverse relationship
  22. The amount of error the auditor is willing to accept in the population and still be willing to rely on the control or accept the account being tested is called
    Tolerable error. When performing tests of controls this is expressed as a percentage referred to as the tolerable deviation rate. When performing substantive tests this is expressed in a dollar amount called the tolerable misstatement
  23. The disadvantage of using concept based judgement is..
    The auditor is unable to quantify sampling risk
  24. Rule based judgement, uses formula
    Sample Size = Population / (tolerable misstatement -expected misstatement) x Risk factor. Primary advantage of this method is it is based on well known methodology
  25. Statistical based judgement
    attribute sampling is one of the common statistical based judgement, advantage is it allows the auditor to quantify and directly control control sampling risk and in addition reduce variation among auditors
  26. Methods of selecting sample size can be categorized as random and non random
Card Set
audit chp 8
chapter 8