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AUDIT UNIVERSE
PSA 530.5(b & c): Audit Sampling - DEFINITIONS
Non-statistical
sampling does not
considered (i) & (ii).
PSA 530. Sec 5 – DEFINITIONS
Cannot be eliminated
due to inherent
limitations of audit.
PSA 530. Sec 5 – DEFINITIONS
PSA 530. Sec 5 – DEFINITIONS
PSA 530. REQUIREMENTS
PSA 530. REQUIREMENTS
PSA 530. REQUIREMENTS
Audit Sampling: KEY DECISIONS
Which population should be tested?
Population?
Sample size?
Selection?
Evaluation?
Audit Sampling: DESIGN
AUDIT OBJECTIVES
STRATIFICATION
Characteristics of Good Audit Samples
1. Representative: estimates the true
population characteristics as
accurately as possible.
2. Corrective: sample will locate as many error items as possible
so these can be corrected.
3. Preventive: sampling method gives audit clients no idea what
items will be selected
4. Protective: attempts to include the maximum number of high
value items in the sample.
DEALING with SAMPLING RISKS
The auditor can eliminate sampling risks by testing the
entire population. However, such testing usually not
possible. Auditor reduces sampling risk to an
acceptably low level by making a sample more
representative of the population by:
- Increasing the sample size
- Using appropriate sample selection method
PSA 530. Sec 5 –SAMPLING RISK
The test objective is based on the ROMM at assertion level that guide
in designing the appropriate audit procedures necessary to achieve
the objective.
10 STEPS OF AUDIT SAMPLING PROCESS
2 Define the deviation or misstatement
Sampling plan to determine enough sample size (fixed sample size) required to have a
Discovery
probability of discovering at least one (critical) deviation
Expected deviation rate = zero or near zero, any deviation detected results in REJECTION
of the sampling plan
Monetary Sample size, selection & results evaluation are terms of monetary
Unit amounts and is appropriate for testing:
Sampling - Assets
- Income
10 STEPS OF AUDIT SAMPLING PROCESS
6 Determine the sufficient sample size
the sampling risk, the the sample size to achieve level of confidence.
7 Select the representative sample items
10 STEPS OF AUDIT SAMPLING PROCESS
7 Select the representative sample items
10 STEPS OF AUDIT SAMPLING PROCESS
7 Select the representative sample items: Sample Selection Methods
7 Select the representative sample items: Sample Selection Methods
7 Select the representative sample items: Sample Selection Methods
Carrying amt (1) Audited amt (2) Misstatement (1-2) Misstatements % [1-2]/2
P 1,500 P 1,200 P 300 25.00%
P 3,500 P 3,000 P 500 16.67%
P 6,000 P 6,500 - P 500 - 7.69%
Test of Details (TOD) – Calculating Sample Misstatements
Monetary Unit Sample (MUS)
Carrying amt (1) Audited amt (2) Misstatement (1-2) Misstatements % [1-2]/2
P 1,500 P 1,200 P 300 25.00%
P 3,500 P 3,000 P 500 16.67%
P 6,000 P 6,500 - P 500 - 7.69%
Total % of misstatement 33.98%
Average % misstatement [33.98% / 100 sample size) 0.3398%
Projected Misstatement [0.3398% x 250,000 population] P 849.50
10 STEPS OF AUDIT SAMPLING PROCESS
10 Complete documentation
True or False
PSA 530
Audit Sampling
1. The most effective way to control sampling
risk is to increase the sample size.
2. For tests of details, the auditor makes an
assessment of the expected misstatement in
the population. If the expected misstatement
is high, 100% examination or use of a large
sample size may be appropriate when
performing tests of details.
3. Statistical sampling is used when an auditor
chooses to examine all purchases of
equipment exceeding P 100,000.00 and to
test the remaining items by analytical
procedures.
4. Audit sampling implies the application of
audit procedures to 100% of items in the
population to use as a basis for making valid
inferences about the characteristics of the
population as whole and examining every
transaction.
5. The only way to know with certainty whether
a sample is representative is to subsequently
audit the entire population.
6. If the expected rate of deviation is
unacceptably high, the auditor will normally
decide not to perform tests of controls.
7. The decision whether to use a statistical or
non-statistical sampling approach is a matter
for the auditor’s judgment; however, sample
size is not a valid criterion to distinguish
between statistical and non-statistical
approaches.
8. The level of sampling risk that the auditor is
willing to accept affects the sample size
required. The lower the risk the auditor is
willing to accept, the lower the sample size
will need to be.
9. Non-statistical sampling permits auditors to
be more subjective, to be vague about risk &
materiality & less rigid approach to unique
audit problems.
10. The sample size can be determined by the
application of a statistically-based formula or
through the exercise of professional judgment.
11. The more the auditor is relying on other
substantive procedures (TOD or SAP) to
reduce to an acceptable level the detection
risk regarding a particular population, the
less assurance the auditor will require from
sampling and, therefore, the larger the
sample size.
12. The auditor’s assessment of the risk of
material misstatement is affected by inherent
risk, audit risk and control risk.
13. For small populations however, audit
sampling may not be as efficient as
alternative means of obtaining sufficient
appropriate audit evidence.
14. The greater the level of assurance that the
auditor desires that the results of the sample
are in fact indicative of the actual incidence
of deviation in the population, the smaller
the sample size needs to be.
15. The lower the tolerable rate of deviation, the
larger the sample size needs to be.
16. PSA 570 provides guidance on the means
available to the auditor for selecting items for
testing, of which audit sampling is one
means.
17. The objective of the auditor when using audit
sampling is to provide a reasonable basis for
the auditor to draw conclusions about the
population from which the sample is
selected.
18. Audit risk means that the auditor’s
conclusion based on a sample may be
different from the conclusion if the entire
population were subjected to the same audit
procedure.
19. If the auditor is unable to apply the designed
audit procedures, or suitable alternative
procedures, to a selected item, the auditor
shall treat that item as a material
misstatement from the prescribed control, in
the case of tests of controls, or a
misstatement, in the case of tests of details.
20. In the extremely rare circumstances when the
auditor considers a misstatement or deviation
discovered in a sample to be an anomaly, the
auditor shall obtain a high degree of certainty
that such misstatement or deviation is not
representative of the population.
21. Haphazard selection is a type of value-
weighted selection in which sample size,
selection and evaluation results in a
conclusion in monetary amounts.
22. The objective of stratification is to reduce the
variability of items within each stratum and therefore
allow sample size to be reduced without increasing
sampling risk.
23. Block selection cannot ordinarily be used in
audit sampling because most populations are
structured such that items in a sequence can
be expected to have similar characteristics to
each other, but different characteristics from
items elsewhere in the population.
24. For large populations, the actual size of the
population has little, if any, effect on sample
size. Thus, for small populations, audit
sampling is often not as efficient as
alternative means of obtaining sufficient
appropriate audit evidence.
25. Factors relevant to the auditor’s consideration
of the expected misstatement amount include
the extent to which item values are determined
subjectively, the results of risk assessment
procedures, the results of tests of control, the
results of audit procedures applied in prior
periods, and the results of other substantive
procedures.
MULTIPLE CHOICES
1. A sample in which the characterisitics in the
sample are the same as thos eof the populations
is a (an)
a. Random sample
b. Variables sample
c. Attributes sample
d. Representative sample
2. Non-sampling errors occur when audit tests do
not uncover existing exceptions in the
a. Population
b. Sample
c. Planning stage
d. Financial statements
3. One of the causes of non-sampling error is
a. The use of inappropriate or ineffective audit
procedures
b. Failure to draw a random sample
c. Failure to draw a representative sample
d. The use of attributes sampling instead of variables
sampling
4. One of the ways to eliminate non-sampling risk is
through
a. Proper supervision and instruction of the client’s
employees
b. Proper supervision and instruction of the audit
team
c. The use of attributes sampling rather than variables
sampling
d. Controls which ensure that the sample drawn is
srandom and representative
5. Sampling risk or error is an inherent part of
sampling that results from
a. Inappropriate audit procedures
b. Failure to recognize exceptions
c. Testing less than the entire population
d. Weaknesses in client’s internal control system
6. One of the ways to reduce sampling risk is to
a. Use an appropriate method of selecting sample
items from the population
b. Carefully design the audit procedures to be used
c. Provide proper supervision and instruction to the
audit team
d. Use variables sampling rather than attribute
sampling
7. Which of the following statements is not correct?
a. It is acceptable for auditors to use statistical
sampling methods.
b. It is acceptable for auditors to use non-statistical
sampling methods.
c. The primary benefit of statistical sampling methods
is the quantification of sampling risk.
d. An advantage of using statistical sampling is that
the cost/benefit ratio is always positive.
8. The most common method used of performing
statistical tests of transaction is
a. Variables sampling
b. Attribute sampling
c. Judgment sampling
d. Random selection of samples
9. Which of the following statements is a valid
criticism of the use of non-statistical sampling
methods?
a. Many audit tests, such as footing of journals, must be
performed outside a statistical context.
b. The cost of performing random selection of testing
often exceeds the benefit.
c. Non-statistical sampling does not differ substantially
from statistical sampling method.
d. Conclusions may be drawn in more precise ways when
using statistical sampling methods.
10. A sample in which every possible combination of
items in the population has an equal chance of
constituting the sample is
a. Representative sample
b. Statistical sample
c. Random sample
d. Judgment sample
11. Which of the following statements regarding
documentation of the sample selection process is not true?
a. Regardless of the method used in selecting a random sample, it
is necessary to have proper documentation.
b. When comparing statistical sampling to judgmental sampling it
is more important that statistical sampling be properly
documented because of its mathematical nature.
c. Minimum documentation would include sufficient information
to permit the reproduction of the sample at a later date.
d. For documentation, it is permissible for the auditor to include
in the working papers a copy of the table used, with the
random numbers identified.
12. Which of the following is not an advantage of
using computerized selection of random
numbers over use of a random number table?
a. Time saving
b. Reduced likelihood of auditor error
c. Automatic documentation
d. Correspondence of the numbers with the
population is not required.
13. The process which requires the calculation of an
interval and then selects the items based on the
size of the interval is
a. Statistical sampling
b. Random selection
c. Systematic selection
d. Computerized selection
14. The advantage of systematic selection is
a. It is easy to use
b. There is limited possibility of it being biased
c. It is unnecessary to determine if the population is
arranged randomly
d. All there of the above
15. When the auditor goes through a population
and selects items for the sample without regard
to their size, source or other distinguishing
characteristics, it is called
a. Block selection
b. Haphazard selection
c. Systematic selection
d. Statistical selection
16. When the auditor intends to evaluate a sample
statistically, the only acceptable selection
method is
a. Probabilistic selection
b. Block selection
c. Haphazard selection
d. Judgmental selection
17. Since auditors are interested in the occurrence
of exceptions in populations, they refer to the
occurrence rate as
a. Exceptions rate
b. Populations rate
c. Deviation rate
d. Confidence level
18. If an auditor, without statistical sampling, selects
a sample of one hundred items from a
population and finds two exceptions, the auditor
a. Can conclude that the sample deviation rate is 2%
b. Can conclude tha the population deviation rate is
2%
c. Can conclude that the highest deviation rate
expected in the population.
d. Cannot make any conclusions about either the
sampe or the population.
19. The degree to which the auditor is justified in
believing that the estimate based on a random
sample will fall within a specified range is called:
a. Sampling risk
b. Non-sampling risk
c. Confidence level
d. Precision
20. Using random numbers to select a sample:
a. Is required for variables sampling plan
b. Is likely to result in an unbiased sample
c. Results in a representative sample
d. Allows auditors to use smaller samples
21. In sampling application, the standard deviation
represents a measure of the:
a. Expected error rate
b. Level of confidence required
c. Degree of data variability
d. Extent of precision achieved
22. In sampling application, the standard deviation
represents a measure of the:
a. Expected error rate
b. Degree of data variability
c. Level of confidence required
d. Extent of precision achieved
23. If all other sample size planning factors were
exactly the same in attributes sampling, changing
the confidence level from 95% to 90% and
changing the desired precision from 2% to 5%
would result in a revised sample size which would
be:
a. Smaller
b. Unchanged
c. Indeterminate
d. Larger
24. Auditors employ the concept of precision in audit
sampling contexts. In this context, precision is
a. A characteristic of the population at hand
b. A measure of the accuracy with which one has
generated sample estimates. Desired precision must be
established before the sample is obtained and
evaluated.
c. Evaluated independently of reliability in a given sample.
d. Important for evaluating variables samples, but not
attribute samples.
25. All of the output from a single source is called a:
a. Population
b. Sample
c. Process
d. Subgroup
26. Considerations for sample design, size & selection of
items for testing, except:
a. When designing an audit sample, the auditor shall
consider the purpose of the audit procedure and the
characteristics of the population from which the sample will
be drawn.
b. The auditor shall determine a sample size sufficient to reduce
sampling risk to an acceptably low level.
c. The auditor shall select items for the sample in such a way that
each sampling unit in the population has a chance of selection.
d. The auditor shall perform audit procedures, appropriate to the
purpose, on each item selected.
27. Evaluate whether each of the following statements
qualifies as sampling:
I. Test performed on 100% of the items within the population
II. Selecting items over a certain amount
III. Selecting items for the total population on the basis that was
expected to be representative
a b c d
Assessment of control risk Inc Inc Inc Dec
Reliance on other substantive procedures Inc Dec Dec Inc
Tolerable misstatement Dec Inc Dec Inc
Expected amount of misstatement Inc Dec Inc Dec
Risk of incorrect acceptance Dec Inc Dec Inc
52. When sampling for attributes, which of the following would
decrease sample size?
a b c d
Operating effectiveness of controls Inc Dec Inc Dec
Tolerable rate of deviation Dec Inc Inc Inc
Expected control deviation Inc Dec Dec Dec
Risk of over reliance Dec Inc Inc Dec
53. Which of the following is the exception rate that
the auditor expects to find before testing?
a. Sample exception rate
b. Computed exception rate
c. Tolerable exception rate
d. Estimated population exception rate
54. A major disadvantage of MUS sampling is which of
the following?
a. Sample selection is relatively easy
b. Sample sizes are relatively small
c. It is difficult to test for understatement
d. It directly controls for the risk of incorrect
acceptance
55. In analyzing misstatements using sampling
techniques, the auditor should analyze the
misstatements
a. Qualitatively and quantitatively
b. Absolutely and proportionately
c. Haphazardly and randomly
d. Methodically and systematically
56. When the auditor goes through a population and
selects items for the sample without regard to
their size, source or other distinguishing
characteristics, it is called:
a. Block sample selection
b. Haphazard selection
c. Systematic sample selection
d. Statistical selection
57. A sample in which every possible combination of
items in the population has an equal chance of
constituting the sample is a:
a. Judgment sample
b. Random sample
c. Statistical sample
d. Representative sample
58. In sample selection, block sampling deals with
a. Each item in the population having an equal
chance of selection
b. Selecting all items on a day or week
c. An arbitrary selection with no conscious bias
d. Every nth item being selected after a random start
59. When the auditor goes through a population and
selects items for the sample without regard to
their size, source, or other distinguishing
characteristics, it is called:
a. Block sample selection
b. Systematic sample selection
c. Haphazard selection
d. Statistical selection
60. An auditor is testing internal control procedures that are
evidenced on an entity’s vouchers by matching random
numbers with voucher numbers. If a random number
matches the number of a voided voucher, that voucher
ordinarily should be replaced by another voucher in the
random sample if the voucher
a. Constitutes a deviation
b. Cannot be located
c. Represents an immaterial peso amount
d. Has been properly voided.