BC2: Glossary of sampling terms
Acceptable risk of incorrect acceptance (ARIA)
The risk that the auditor will conclude that the recorded balance is not materially
misstated when in fact it is; classed as a beta risk. (See also "detection risk.")
Acceptable risk of incorrect rejection
The risk that the auditor will conclude that the recorded balance is materially
misstated when in fact it is not; classed as an alpha risk.
Acceptable risk of over-reliance (ARO)
The level of risk that auditors are willing to assume when they draw the conclusion
that a control procedure is working when in fact it is not. ARO is classed as a beta
risk.
Acceptable risk of under-reliance
The level of risk that auditors are willing to assume when they draw the conclusion
that a control procedure is not working, when in fact it is. This is classed as an alpha
risk.
Allowable risk of assessing control risk too low (ARACR)
See "acceptable risk of over-reliance (ARO)."
Alpha risk
The risk that the auditor concludes that the population is worse in terms of errors
than it really is. See "type I error" and "sampling risk."
Appropriate
As applied to audit evidence, relates to the quality of the evidence. (See also
"sufficient.")
Assertions
Representations by management about the components of the financial statements.
Assurance
The probability of the absence of material errors in the financial statements after all
audit tests have been completed (100% assurance would be complete certainty; 0%
assurance would be complete uncertainty). The higher the level of assurance, the
more evidence is required. (See also "reliance" and "confidence.")
Attribute sampling
Tests the effectiveness of internal controls and is used primarily in tests of control.
Audit sampling
Applying audit procedures to less than the entire population to either estimate the
characteristics of, or verify some assumptions about, the population.
Beta risk
The risk that the auditor concludes the population is better in terms of errors than it
really is. See "type II error" and "sampling risk."
Block sampling
Selecting a consecutive sequence of transactions, such as by time, document number,
or physical location.
Computed lower deviation rate (CLDR)
The lower limit of the probable population deviation rate. (See also "computed upper
deviation rate.")
Computed upper deviation rate (CUDR)
The upper limit of the probable population deviation rate. (See also "computed lower
deviation rate.")
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Computed upper exception rate (CUER)
See "computed upper deviation rate (CUDR)."
Discovery sampling
Has as its objective to locate at least one deviation. Usually associated with fraud
audits and samples for critical errors.
Dollar-unit sampling
Application of concepts used in attribute sampling to estimate the true value of an
account balance.
Dual-purpose tests
Fulfil the objectives of both tests of control and substantive tests concurrently.
Estimated population deviation rate (EPDR)
An estimate of the frequency of errors that should be expected in the population
Estimated population exception rate (EPER)
See "estimated population deviation rate (EPDR)."
Haphazard sampling
Items from a population are selected manually with the objective of drawing a
representative sample, trying to simulate a random draw.
High-risk transaction sampling
Selecting from the population only items judged to be high risk, for example, unusual
items, items with a history of error, or overdue items.
Monetary unit sampling (MUS)
See "dollar-unit sampling."
Multiple start systematic sampling
Same as systematic sampling, except that the population is passed through more than
once.
Non-sampling error
Errors that are not inherent in the sampling technique, but are due to human error,
such as insufficient audit training, inappropriate audit test, carelessness. (Compare
"sampling error.")
Population
The entire collection of data that the auditor wishes to examine and upon which
conclusions will be drawn.
Precision
The difference between the tolerable deviation rate (TDR) and the expected
population deviation rate (EPDR).
Random sample
Each item in the sample is selected in a manner such that each item in the population
has an equal chance of being included in the sample.
Reliability
The probability of the absence of material errors for a specific audit test. (See also
"assurance" and "confidence.")
Sample
A group comprising less than 100% of the population.
Sample deviation rate (SDR)
The number of observed exceptions divided by the sample size.
Sampling error
Errors inherent in the nature of sampling.
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Sampling risk
Sampling risk is the risk that a sample does not reflect the true characteristics of the
population. (In non-statistical sampling, the auditor is simply aware of this risk. In
statistical sampling, however, the auditor has to nominate the level of sampling risk
that he or she is prepared to accept.) The sample may not be representative of the
population as a result of one of two types of sampling error occurring:
•
the true characteristics of the population are not represented in a sample
when a significant exception is not present. (This is sometimes referred to by
auditors as a Type I error; the probability of the occurrence of such an error
is called alpha risk.)
•
the true characteristics of the population are not represented in a sample
when a significant exception is present. (This is sometimes referred to by
auditors as a Type II error; the probability of the occurrence of such an error
is called beta risk.)
Sampling risk (both alpha and beta risk) is controlled through the size of the
sample — the greater the sample size selected, the lower the level of sampling risk,
and vice versa.1
Sequential sampling
The sample is chosen in several steps, with each step conditional on the results of the
previous step.
Significant transactions sampling
Selecting from the population only items over a certain materiality limit. (See also
"high-risk transaction sampling.")
Statistical sampling
All items in the population have some chance of being included in the sample. The
sample should be representative of the population.
Stratified sampling
Grouping items with similar characteristics into subpopulations, or strata. Samples
are selected from each strata.
Stringer bound
A common method used to calculate error bounds.
Substantive tests
Conducted to obtain evidence about the validity and "correctness" of transactions and
balances.
Substantive tests of transactions
Tests used to detect misstatements in individual transactions.
Sufficient
As applied to audit evidence, relates to quantity of the evidence. (See also
"appropriate.")
Systematic sampling
Individual items are selected at a constant interval. (See also "multiple start
systematic sampling.")
Tests of control
Assess the effectiveness of the design or operation of an internal control procedure in
preventing or detecting material misstatement in a financial statement assertion.
Tolerable deviation rate (TDR)
The maximum population deviation rate the auditor is willing to accept without
altering the planned assessed level of control risk. For example, a low (3–7%) rate
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might be used if substantial reliance on the control is planned. The tolerable rate is
inversely related to sample size.2 See "tolerable error."
Tolerable error
The maximum dollar amount of error that will be accepted for a particular account
balance and still be accepted as not materially misstated.
Tolerable exception rate (TER)
See "tolerable error."
Type I error
In auditing, issuing a qualified or adverse opinion when the financial statements
contain no material misstatements.
Type II error
In auditing, issuing an unqualified opinion when the financial statements do contain
material misstatements.
Variables sampling
Used to estimate the dollar value of some characteristic of the population; used in
substantive testing.
Source: Adapted from CGA-Canada PD Net course: Attribute and Dollar-Unit
Sampling: Audit Procedures and Techniques, by Stephen Spector and Chuck
Campbell (originally authored by Gary Porter)
1
Australian Educational Research Pty Ltd (AER), "Sampling risk," ABREMA:
Activity Based Risk Evaluation Model of Auditing.
www.abrema.net/abrema/testing/sampling_risk_g.html. Accessed April 5, 2007.
2
Bruce Wampler and Michelle McEacharn, "Customized Tables for Tests of
Controls: A Spreadsheet" The CPA Journal (February 2001).
www.nysscpa.org/cpajournal/2001/0200/dept/d024801.htm. Accessed April 5, 2007
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