1. Assuming the tolerable deviation rate is 5%, the expected population rate is 3%, and the allowance
for sampling risk is 2%, what should an auditor conclude if a test of 100 randomly selected
documents reveals 4 deviations?
 Assess control risk at the maximum because the sample deviation rate plus the allowance
for sampling risk exceeds the tolerable rate.
2. Explain the two components of audit risk.
 Financial statement risk (risks of material misstatement) – this is the risk that the financial
statements are materially misstated prior to audit. This consists of two components:
inherent risk and control risk.
 Detection risk – this is simply the risk that the auditor’s procedures will not detect a
misstatement that exists in an assertion that could be material.
3. Which two aspects of sampling risk are critical in the test of controls? Explain why.
 Risk of Under Reliance – the risk that, although the sample result does not support the
auditor’s assessment of control risk, the actual compliance rate would support such an
assessment.
 Risk of Over Reliance – the risk that, although the sample result supports the auditor’s
assessment of control risk, the actual compliance rate would not support such an
assessment.
4. Explain the difference between statistical and non-statistical sampling plans.
 Statistical Sampling – a sampling approach that applies the laws of probability to aid the
auditor in designing an efficient sample, in measuring the sufficiency of evidence obtained
and in evaluating the sample results.
 Non-statistical Sampling – a sampling approach that relies exclusively on subjective
judgment to determine the sample size and to evaluate the sample results.
5. Explain the difference between deviations and attributes.
6. The risk that material errors may occur and remain undetected is influenced by two categories of
uncertainties. Name and define these two categories of uncertainties.
 Sampling risk – means the possibility that the auditor’s conclusion, based on a sample, may
be different from the conclusion that would have been reached if the entire population
were subject to the same audit procedure.
 Non-sampling risk – the risk of auditor error and arises from: inappropriate of ineffective
audit procedures; failure to recognize errors in the sample tested; and misinterpretation of
evidence obtained.
7. List and define five commonly used methods of selecting a sample.
 Random number selection – under this method, the auditor ensures that all items in the
population have an equal chance of selection.



Systematic selection – involves selecting items using a constant interval between selections,
the first interval having a random start.
Judgmental selection – this may be an acceptable alternative to random selection, provides
the auditors an attempt to draw a representative sample from the entire population with no
intention to either include or exclude specific units.
Stratified random sampling – stratification is the process of dividing a population into subpopulations, each of which is a group of sampling units, which have similar characteristics.
8. An auditor is applying a difference estimation sampling plan. Assuming the risk of incorrect rejection
is .10, and the risk of incorrect acceptance is .05, what is the ratio of desired allowance for sampling
risk to tolerable error?
 .500
9. An auditor is applying a difference estimation sampling plan. Recorded book value is P 1,000,000
and the auditor estimates a P 75,000 understatement difference. In this case, the auditor’s
estimated population value is
 P1, 000,000 book value + P75, 000 auditor estimates = 1,075,000 population value.
10. An auditor is applying probability-proportional to size sampling. If the population consists of 200
items and is represented by P 1,000,000 what is the probability the auditor will select for testing the
account recorded at P 100,000.
 .100
11. Define and contrast an audit population and with a sampling unit.
 Sampling population – the population consists of all the items that constitute the financial
statement balance.
 Sampling unit – this is any of the individual elements that make up the population.
12. List the four steps in determining the sample size in variables sampling.

13.
𝐴𝑅
? ? ? = 𝐼𝐶×𝐴𝑃
An auditor when considering the level of audit risk, consider the formula noted above.
Explain the different components of the formula and the final product that will be
derived by the use of this formula.
14. Calculate the sample size for the following account using the formula below.
Recorded account balance P 75,000
Amount audited
35,000
Tolerable error
4,000
Assurance factor
𝑛=
𝐵𝑉𝑃 − 𝐴𝑉
× 𝐴𝐹
𝑇𝐸
Where in: n – is the sample size, BVP – book value of the entire population, AV –
amount audited, TE – tolerable error and AF – assurance factor.