cpa audit review ch 15 review 2
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The use of the ratio estimation sampling technique is most effective when
The calculated audit amounts are approximately proportional to the client’s carrying amounts.
Ratio estimation calculates the population misstatement by multiplying the carrying amount of the population by the ratio of the total audit amount of the sample items to their total carrying amount. The precision is determined by considering the variances of the ratios of carrying amount to audited amount. Thus, the more homogeneous the ratios, the smaller the precision.
true or false --- When using sampling for substantive tests of details, the auditor is required to compute the sample standard deviation.
false - AU-C 530 does not require that the sample standard deviation be calculated. The computation would be necessary if parametric statistical sampling were used, but statistical sampling is not required by AU-C 530.
An advantage of using statistical over nonstatistical sampling methods in tests of controls is that the statistical methods
Provide an objective basis for quantitatively evaluating sample risk.
Sampling risk is the risk that the auditor’s conclusion based on a sample may differ from the conclusion when the same procedure is applied to the entire population. Two types of erroneous conclusions may be drawn. One is that controls are more effective than they actually are, or a material misstatement does not exist when in fact it does exist. This type of error affects audit effectiveness and is more likely to result in an inappropriate opinion. The second erroneous conclusion is that controls are less effective than they actually are, or a material misstatement exists when in fact it does not exist. This type of error affects audit efficiency and results in more work. Sampling risk is measured and controlled in statistical sampling.
An auditor who uses statistical sampling for attributes in testing internal controls should alter the assessed risk of material misstatement when the
Sample rate of deviation plus the allowance for sampling risk exceeds the tolerable population deviation rate.
The auditor may calculate sample size from standard tables based on the tolerable population deviation rate, the likely rate of deviations, and the risk of overreliance. Given the sample size and the sample deviation rate, another table is used to determine an upper deviation rate at the specified level of risk. The difference between the upper deviation rate and the sample rate is the allowance for sampling risk. When the upper deviation rate (sample rate + allowance for sampling risk) exceeds the tolerable population deviation rate, the sample result does not support the assessed risk of material misstatement.
Stratified mean-per-unit (MPU) sampling is a statistical technique that may be more efficient than unstratified MPU because it usually
Produces an estimate having a desired level of precision with a smaller sample size.
The primary objective of stratification is to reduce the effect of high variability by dividing the population into subpopulations. Reducing the variance within each subpopulation allows the auditor to sample a smaller number of items while holding precision and confidence level constant.
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