OH-Q1 (MC #32)
Given random selection, the same sample size, and the same precision requirement for the testing of two unequal populations, the risk of assessing control risk
too Iowan the smaller population is
a.
Higher than assessing control risk too low for the larger population
b.
Indeterminate relative to assessing control risk too low for the larger
population
c.
Lower than assessing control risk too low for the larger population
d.
The same as assessing control risk too low for the larger population
(Editors, 7498)
OH-02
Audit Risk Model
X
=
AR = The allowable Audit Risk that audit procedures will not detect misstatements
equal to tolerable misstatements.
RMM (Risk of Material Misstatement) = Risk (consisting of inherent risk and
control risk) that the relevant assertions related to balances, classes, or
disclosures contain misstatements that could be material to the financial
statements when aggregated with other misstatements.
IR
=
CR
Inherent Risk is the susceptibility of an assertion to a material
misstatement assuming there are no related internal control structure
policies or procedures.
= Control Risk is the risk that internal control policies and procedures will
not detect material misstatements on a timely basis.
DR (Detection Risk) = Risk that an auditor will not detect a material misstatement
that exists in an assertion.
AP = Risk that analytical procedures and other substantive tests will not
detect misstatements equal to the tolerable misstatement.
TD = Risk that internal control, analytical procedures, and other relevant
substantive tests will not detect misstatements equal to the tolerable
misstatement.
OH-03 (MC #6)
The diagram below depicts an auditor's estimated maximum deviation rate compared with the tolerable rate, and also depicts the true population deviation rate
compared with the tolerable rate.
True state of population
Auditors estimate based on
sample results
Dev Rte < tolerable rte
Dev Rte > tolerable Rte
Maximum deviation rate is less
than tolerable rate
I.
III.
II.
IV.
Maximum deviation rate exceeds
tolerable rate
As a result of tests of controls, the auditor assesses control risk too low and
thereby decreases substantive testing. This is illustrated by situation
a.
I
b.
II
c.
III
d.
IV
(11/95, AUD, #17,5964)
OH-04
Substantive Tests of Details
Planning a sample
The auditor should consider the following:
1.
Relationship of the sample to the relevant audit objectives
2.
Preliminary judgments of materiality levels
3.
Auditor's allowable risk of incorrect acceptance
4.
Characteristics of the population
5.
Tolerable Misstatement
6.
Size
OH-05 (MC #8)
An advantage of statistical sampling over nonstatistical sampling is that statistical
sampling helps an auditor to
a.
Eliminate the risk of nonsampling errors
b.
Reduce the level of audit risk and materiality to a relatively low amount
c.
Measure the sufficiency of the audit evidence obtained
d.
Minimize the failure to detect errors and fraud
(11/95, AUD, #44, amended, 5991)
OH-06
Classical Sample Selection Methods
1.
Judgmental (haphazard) sampling
2.
Random number sampling
3.
Systematic sampling
4.
Stratified sampling
5.
Block sampling
OH-07
Methods of Attributes
Sampling
1.
Sequential sampling
2.
Attribute estimation method
3.
Acceptance sampling method
4.
Discovery sampling method
OH-08
Steps in Attributes Sampling
1.
Determine objective
2.
Determine tolerable rate
3.
Determine confidence (reliability) level
4.
Determine expected population deviation rate
5.
Consider effect of population size
6.
Determine method of selecting sample
7.
Compute sample size
8.
Select & audit sample items
9.
Evaluate sample results
10.
Reach an overall conclusion
11.
Document sampling procedure
OH-09 (MC #38)-
In determining the number of documents to select for a test to obtain assurance that
all sales returns have been properly authorized, an auditor should consider the
tolerable rate of deviation from the control activity.
The auditor should also consider the
I.
II.
a.
b.
c.
d.
Likely rate of deviations
Allowable risk of assessing control risk too high
I only
II only
Both I and II
Either I or II
(11/97, AUD, #16,6579)
OH-10
Methods of Classical Variables Sampling
1.
Simple extension (meanper-unit approach)
2.
Difference estimation
3.
Ratio method
OH-11
Steps in Classical Variables Sampling
1. Determine objectives
2. Define population
3. Determine confidence level
4. Determine expected standard deviation of population
5. Determine tolerable misstatement
6. Select method of audit sampling
7. Determine sample size
8. Inspection (select & audit sample items)
9. Evaluate sample results
10. Reach overall conclusion
11. Document sampling procedure
end chapter 26------------------------------------