Auditing Theory: Audit Sampling
Auditing Theory: Audit Sampling
Manila
AUDIT SAMPLING
1. “Audit Sampling” involves the application of audit procedures to less than 100% of items
within an account balance or class of transactions.
AUDIT SAMPLING PLAN refers to the procedures an auditor applies to accomplish a sampling
application. It aids an auditor in forming conclusions about one or more characteristics of either
a particular class of transactions or a particular account balance.
1. ATTRIBUTE SAMPLING
• Applicable to tests of control.
• Used to test an entity’s rate of deviation (also called rate of occurrence) from a prescribed
control procedure.
2. VARIABLES SAMPLING
• Applicable to substantive tests.
• Most commonly used to test whether recorded account balances are fairly stated.
SAMPLING RISK
1. “Sampling risk” arises from the possibility that the auditor’s conclusion, based on a sample
may be different from the conclusion reached if the entire population were subjected to the
same audit procedures.
2. The confidence level (also called reliability level) is the mathematical complement of the
applicable sampling risk factor.
3. Sampling risk is to be measured and controlled. The auditor controls sampling risk by
specifying the acceptable level when developing the sampling plan.
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NONSAMPLING RISK
Nonsampling risk arises from factors that cause the auditor to reach an erroneous conclusion for
any reason not related to the size of the sample. For example, most audit evidence is persuasive
rather than conclusive, the auditor might use inappropriate procedures, or the auditor might
misinterpret evidence and fail to recognize an error.
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b. Systematic selection
• The number of sampling units in the population is divided by the sample size to give
a sampling interval, for example 50, and having determined the starting point within
the first 50, each 50th sampling unit is thereafter selected.
• Although the starting point may be determined haphazardly, the sample is more likely
to be truly random if it is determined by use of a computerized random number
generator or random number tables.
• When using systematic selection, the auditor would need to determine that sampling
units within the population are not structured in such a way that the sampling interval
corresponds with a particular pattern in the population.
d. Haphazard selection
• The auditor selects the sample without following a structured technique.
• It is not appropriate when using statistical sampling.
e. Stratification
• This involves subdividing a population into subpopulations or strata, i.e., a group of
sampling units which have similar characteristics (often monetary value).
• The strata must be explicitly defined so that each sampling unit can belong to only
one stratum.
• This method enables the auditor to direct his efforts towards the items he considers
would potentially contain the greater monetary error.
b. Determining the maximum population deviation rate (achieved upper deviation limit) and
the allowance for sampling risk (achieved precision).
• The maximum deviation rate is based on the sample size and the number of deviations
discovered. There are standard tables that yield maximum population deviation rates
at specified risks of assessing control risk too low.
• Allowance for sampling risk = Maximum Deviation Rate – Sample Deviation Rate
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b. DIFFERENCE ESTIMATION – A classical variables sampling technique that uses the average
difference between audited amounts and individual recorded amounts to estimate the total
audited amount of a population and an allowance for sampling risk.
c. RATIO ESTIMATION – A classical variables sampling technique that uses the ratio of audited
amounts to recorded amounts in the sample to estimate the total amount of the population
and an allowance for sampling risk.
Ratio estimation is more appropriate when the differences are nearly proportional to book values.
Difference estimation is more appropriate when there is little or no relationship between the
absolute amounts of the differences and the book values.
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3. Population, as defined in PSA 530, means the entire set of data from which a sample is
selected and about which the auditor wishes to draw conclusions. It is important for the
auditor to ensure that the population is
I. Appropriate to the objective of the audit procedure.
II. Complete.
A. I only C. Both I and II
B. II only D. Neither I nor II
6. The risk that the auditor’s conclusion based on a sample may be different from the conclusions
reached if the entire population were subjected to the same audit procedure.
A. Audit risk C. Sampling risk
B. Control risk D. Information risk
8. The risk of incorrect acceptance and the likelihood of assessing control risk too low relate to
the
A. Effectiveness of the audit.
B. Efficiency of the audit.
C. Preliminary estimates of materiality levels.
D. Tolerable misstatement.
9. While performing a test of details during an audit, the auditor determined that the sample
results supported the conclusion that the recorded account balance was materially misstated.
It was, in fact, not materially misstated. This situation illustrates the risk of
A. Incorrect rejection C. Assessing control risk too low
B. Incorrect acceptance D. Assessing control risk too high
10. The likelihood of assessing control risk too high is the risk that the sample selected to test
controls
A. Does not support the auditor’s planned assessed level of control risk when the true
operating effectiveness of internal control justifies such an assessment.
B. Contains misstatements that could be material to the financial statements when
aggregated with misstatements in other account balances of transactions classes.
C. Contains proportionately fewer deviations from prescribed internal controls than exist in
the balance or class as a whole.
D. Does not support the tolerable misstatement for some or all of management’s assertions.
11. Which of the following statistical selection techniques is least desirable for use by an auditor?
A. Systematic selection C. Block selection
B. Stratified selection D. Sequential selection
12. 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 C. Haphazard selection
B. Systematic selection D. Random selection
14. When performing a test of a control with respect to control over cash receipts, an auditor may
use a systematic sampling technique with a start at any randomly selected item. The biggest
disadvantage of this type of sampling is that the items in the population
A. Must be systematically replaced in the population after sampling.
B. May systematically occur more than once in the sample.
C. Must be recorded in a systematic pattern before the sample can be drawn.
D. May occur in a systematic pattern, thus destroying the sample randomness.
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15. In testing accounts receivable, an auditor sends out positive confirmation requests to 100
randomly selected customers. A customer returns the confirmation indicating that the balance
is correct when, in fact, the balance is overstated. This is an example of:
A. Projected misstatement. C. Sampling error.
B. Standard error. D. Nonsampling error.
16. The expected population deviation rate of client billing errors is 3%. The auditor has
established a tolerable rate of 5%. In the review of client invoices the auditor should use
A. Stratified sampling C. Discovery sampling
B. Variable sampling D. Attribute sampling
17. For which of the following audit tests would an auditor most likely use attribute sampling?
A. Making an independent estimate of the amount of FIFO inventory.
B. Examining invoices in support of the valuation of fixed asset additions.
C. Selecting accounts receivable for confirmation of account balances.
D. Inspecting employee time cards for proper approval by supervisors.
18. Which of the following statements is correct concerning statistical sampling in tests of
controls?
A. Deviations from control procedures at a given rate usually result in misstatements at a
higher rate.
B. As the population size doubles, the sample size should also double.
C. The qualitative aspects of deviations are not considered by the auditor.
D. There is an inverse relationship between the sample size and the tolerable rate.
20. If all other factors specified in an attribute sampling plan remain constant, decreasing the
tolerable rate and decreasing the risk of assessing control risk too low would have what effect
on sample size?
A. Increase.
B. Remain the same.
C. Decrease.
D. Indeterminate, depends upon exact change being made.
21. 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. C. Cannot be located.
B. Has been properly voided. D. Represents an immaterial peso amount.
22. An auditor plans to examine a sample of 20 purchase orders for proper approvals as
prescribed by the client’s internal control procedures. One of the purchase orders in the
chosen sample cannot be found, and the auditor is unable to use alternative procedures to
test whether that purchase was properly approved. The auditor should
A. Choose another purchase order to replace the missing purchase order in the sample.
B. Consider this test of control invalid and proceed with substantive tests since internal
control cannot be relied upon.
C. Treat the missing purchase order as a deviation for the purpose of evaluating the sample.
D. Select a completely new set of 20 purchase orders.
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23. An error that arises from an isolated event that has not recurred other than on specifically
identifiable occasions and is therefore not representative of similar errors in the population is
a/an
A. Anomalous error C. Individual error
B. Isolated error D. Non-recurring error
24. In the evaluation of this sample, the auditor decided to increase the level of the preliminary
assessment of control risk because the
A. Tolerable rate (7%) was less than the achieved upper precision limit (8%).
B. Expected deviation rate (7%) was more than the percentage of errors in the sample (3
½%).
C. Achieved upper precision limit (8%) was more than the percentage of errors in the sample
(3 ½%).
D. Expected deviation rate (2 ½%) was less than the tolerable rate (7%).
26. The diagram below depicts the auditor’s estimated maximum deviation rate compared with
the tolerable rate and also depicts the true population deviation rate compared with the
tolerable rate.
True State of Population
Auditor’s
Estimate Deviation Rate Deviation Rate
Based on Is less than Exceeds
Sample Results Tolerable Rate Tolerable Rate
Maximum
Deviation Rate I. III.
Is Less than
Tolerable Rate
Maximum
Deviation Rate II. IV.
Exceeds
Tolerable Rate
As a result of tests of controls, the auditor assesses control risk higher than necessary and
thereby increases substantive testing. This is illustrated by
A. I C. III
B. II D. IV
27. When an auditor has chosen a random sample and is using nonstatistical attributes sampling,
that auditor
A. Need not consider the risk of assessing control risk too low.
B. Has committed a nonsampling error.
C. Will have to use discovery sampling to evaluate the results.
D. Should compare the deviation rate of the sample to the tolerable deviation rate.
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28. In addition to evaluating the frequency of deviations in tests of controls, an auditor should
also consider certain qualitative aspects of the deviations. The auditor most likely would give
broader consideration to the implications of a deviation if it was
A. The only deviation discovered in the sample.
B. Identical to a deviation discovered during the prior year’s audit.
C. Caused by an employee’s misunderstanding of instructions.
D. Initially concealed by a forged document.
29. Which of the following statistical sampling plans does not use a fixed sample size for tests of
controls?
A. Attributes sampling C. PPS sampling
B. Sequential sampling D. Variables sampling
30. If the auditor is concerned that a population may contain exceptions, the determination of a
sample size sufficient to include at least one such exception is a characteristic of
A. Discovery sampling C. Random sampling
B. Variables sampling D. PPS sampling
31. Which of the following sampling methods would be used to estimate a numerical
measurement of a population, such as a peso value?
A. Attributes sampling C. Variables sampling
B. Stop-or-go sampling D. Random-number sampling
32. Which of the following sample planning factors would influence the sample size for a
substantive test of details for a specific account?
In the As a
Planning Stage Substantive Test
A. No No
B. Yes Yes
C. No Yes
D. Yes No
34. The maximum error in a population that the auditor is willing to accept.
A. Tolerable Error C. Anomalous Error
B. Sample error D. Expected Population Error
35. Which of the following courses of action would an auditor most likely follow in planning a
sample of cash disbursements if the auditor is aware of several unusually large cash
disbursements?
A. Set the tolerable rate of deviation at a lower level than originally planned.
B. Stratify the cash disbursements population so that the unusually large disbursements are
selected.
C. Increase the sample size to reduce the effect of the unusually large disbursements.
D. Continue to draw new samples until all the unusually large disbursements appear in the
sample.
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36. A number of factors influence the sample size for a substantive test of details of an account
balance. All other factors being equal, which of the following would lead to a larger sample
size?
A. Greater reliance on internal controls
B. Smaller expected frequency of errors
C. Greater reliance on analytical procedures
D. Smaller measure of tolerable misstatement
38. Using statistical sampling to assist in verifying the year-end accounts payable balance, an
auditor has accumulated the following data:
Balance Determined
Number of Accounts Book Balance by the Auditor
Population 4,100 P5,000,000 ?
Sample 200 P250,000 P300,000
Using the ratio estimation technique, the auditor's estimate of year-end accounts payable
balance is
A. P6,150,000 C. P6,000,000
B. P6,025,000 D. P5,125,000
39. An advantage of statistical over nonstatistical sampling methods in tests of controls is that
the statistical methods
A. Afford greater assurance than a nonstatistical sample of equal size.
B. Provide an objective basis for quantitatively evaluating sampling risks.
C. Can more easily convert the sample into a dual-purpose test useful for substantive testing.
D. Eliminate the need to use judgment in determining appropriate sample sizes.
40. Which of the following statements is correct about the sample size in statistical sampling when
testing internal controls?
A. The auditor should consider the tolerable rate of deviation from the controls being tested
in determining sample size.
B. As the likely rate of deviation decreases, the auditor should increase the planned sample
size.
C. The allowable risk of assessing control risk too low has no effect on the planned sample
size.
D. Of all the factors to be considered, the population size has the greatest effect on the
sample size.
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