Home > Preview
The flashcards below were created by user
Joens1313
on FreezingBlue Flashcards.

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
Incorrect rejection.
An auditor is concerned with two aspects of sampling risk in performing substantive tests of details: the risk of incorrect acceptance and the risk of incorrect rejection. The second is the risk that the sample supports the conclusion that the recorded account balance is materially misstated when it is not materially misstated.

Many statistical estimates may be useful to an auditor. But most are either of a quantity or a deviation rate. The statistical terms that correspond to quantities and deviation rates, respectively, are
Variables and attributes.
Variables sampling is used by auditors to estimate quantities or dollar amounts in substantive testing. Attribute sampling applies to testing of internal controls and is used to estimate a deviation rate (occurrence rate) within a population.

To determine the sample size for a test of controls, the auditor considers (1) , (2) , and (3). An increase in the allowable risk of overreliance, an increase in the tolerable rate, and a decrease in the expected rate each has the effect of reducing the required sample size.
To determine the sample size for a test of controls, the auditor considers (1) the tolerable rate of deviations from the control being tested, (2) the expected actual rate of deviations, and (3) the allowable risk of overreliance. An increase in the allowable risk of overreliance, an increase in the tolerable rate, and a decrease in the expected rate each has the effect of reducing the required sample size.

As a result of tests of controls, an auditor overrelied on controls and decreased substantive testing. This assessment occurred because the true deviation rate in the population was
More than the deviation rate in the auditorâ€™s sample.
In the case of a test of controls, overreliance is the erroneous conclusion that controls are more effective than they actually are. Overreliance occurs if the sample has fewer observed deviations than the true deviation rate in the population.

An auditor examining inventory most likely would use variables sampling rather than attributes sampling to
Estimate whether the dollar amount of inventory is reasonable.
Variables sampling is used by auditors to estimate quantities or dollar amounts in substantive testing. Attribute sampling applies to tests of controls and is used to estimate a deviation rate (occurrence rate) for a population. Thus, an auditor who wants to estimate whether the dollar amount of inventory is reasonable uses variables sampling.

