cpa audit review ch 15 review 3

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cpa audit review ch 15 review 3
2014-06-30 23:59:52
cpa audit review 15

cpa audit review ch 15 review 3
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  1. In statistical sampling methods used in substantive testing, an auditor most likely would stratify a population into meaningful groups if
    The population has highly variable recorded amounts.

    The primary objective of stratification is to reduce the effect of high variability by dividing the population into subpopulations. Reducing the effect of the variance within each subpopulation allows the auditor to sample a smaller number of items while holding precision and the confidence level constant.
  2. In estimation sampling for variables, what must be known in order to estimate the appropriate sample size required to meet the auditor’s needs in a given situation?
    The acceptable level of risk.

    Variables sampling is used in tests of details because it may be used to (1) estimate the amount of a variable, such as an account balance, and (2) quantify the risk that the estimate may not approximate the true value. For substantive tests of details, the sample size depends on the auditor’s desired assurance (1.0 – the risk of incorrect acceptance) that tolerable misstatement is not less than actual misstatement in the population. The desired assurance may be based on, among other things, the following: (1) the assessed risk of material misstatement, (2) the assurance provided by other substantive procedures related to the same assertion, (3) tolerable misstatement, and (4) expected misstatement for the population. Accordingly, as the acceptable risk of incorrect acceptance decreases, the desired assurance increases, and the auditor decreases the tolerable misstatement.
  3. is the following statement about statistical sampling in tests of controls true?

    The relationship between the sample size and the tolerable population deviation rate is inverse.
    True ---- The relationship between the sample size and the tolerable population deviation rate is inverse.

    The tolerable population deviation rate is set by the auditor. The auditor seeks to obtain appropriate assurance that this rate is not exceeded by the actual rate. The sample size and the tolerable population deviation rate have an inverse relationship because the degree of assurance to be provided by the sample is higher (lower) when the tolerable population deviation rate is lower (higher).
  4. what would be a consideration in planning an auditor’s sample for a test of controls?
    The auditor’s allowable risk of overreliance.

    A test of controls is an application of attribute sampling. The initial size for an attribute sample is based on (1) the desired assurance (complement of the risk of overreliance) that the tolerable population deviation rate is not exceeded by the actual rate, (2) the tolerable population deviation rate, (3) the expected population deviation rate, and (4) the population size. However, a change in the size of the population has a very small effect on the required sample size when the population is large. Consequently, population size is often not considered unless it is small.
  5. While performing a substantive 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
    Incorrect rejection.

    Sampling risk is the risk that the auditor’s conclusion based on a sample may differ from the conclusion if the same audit procedure were applied to every item in the population. For a test of details, sampling risk can result in two kinds of erroneous conclusions: (1) a material misstatement does not exist when, in fact, it does (an error affecting audit effectiveness because it is more likely to lead to an inappropriate audit opinion), and (2) a material misstatement exists when, in fact, it does not (an error affecting audit efficiency because it usually results in additional work) (AU-C 530). The second kind of erroneous conclusion is incorrect rejection