The two types of sampling risks auditors face include the risk of incorrect acceptance and the risk of incorrect rejection. What do each of these mean and how will each impact the audit process and the audit results?

The two types of sampling risks auditors face include the risk of incorrect acceptance and the risk of incorrect rejection. What do each of these mean and how will each impact the audit process and the audit results?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: Explain how decisions about when and how much substantive testing is performed relate to the overall…

A: The substantive testing is a method used by the audit staff to gather evidence about the…

Q: The auditor attempts to correct for the risk of under-auditing (ineffectiveness) and over-auditing…

A: Auditing is the process of examining financial statements, records, and other financial information…

Q: When performing audit procedures, the auditor is faced with an uncertainty of not detecting material…

A: Define sampling risk. Sampling risk is the risk that a sample statistic will differ from the true…

Q: Accounting analyse the impact the discovery of control deficiencies will have on the approach to…

A: Sampling is the process of picking a specific number of observations from a larger population in…

Q: List three situations where the auditor would be unlikely to use audit sampling techniques.

A: Audit sampling techniques are the techniques used by the auditor while auditing the entity where the…

Q: Which of the following increase control risk?

A: The answer for the multiple choice question and relevant explanation are presented hereunder : What…

Q: Ordinarily, risk assessment procedures do not involve the use of audit sampling. However, the…

A: The purpose of audit risk assessment is to gain a better understanding of Organisation and its…

Q: Which of the following regarding the level of materiality is correct? Select one: a. An increase in…

A: Materiality is a concept used in auditing to determine the significance or importance of an item or…

Q: s1: The only way to know with certainty whether a sample Is representative is to subsequently audit…

A: Option (c) is the correct answer i.e. s1 and s2 are true

Q: Auditors must be aware of sampling risks because: A The risk of type 2 error due to increased…

A: The Type 2 error is failing to detect a material misstatement in the financial statements. Type 1…

Q: Explain

A: In Statistical sampling, there are equal chances of selection of each sampling unit whereas in…

Q: What is the tolerable rate of deviation? How does the audit team use it when deciding whether torely…

A: Tolerable rate of deviation: Tolerable rate of deviation is the maximum rate of deviation is used by…

Q: Which of the following steps involved with determining the upper limit on misstatements is…

A: Determine the audited value of the item and compare it to the recorded balance is step involved with…

Q: Attribute sampling is a statistical technique used in audit procedures to examine the…

A: Whether or not official signatures appear on all checks depends on the specific control procedures…

Q: Which of the following factors used to determine sample size is normally based on the extentto which…

A: Sampling: Sampling allows an individual obtain the information about the population of interest in…

Q: The risk that the decision made based on the sample will differ from the decision madebased on the…

Q: Is nonstatistical sampling permitted under generally accepted auditing standards?

A: Non- statistical sampling means selection of a group to be tested which is based on the examiner's…

Q: Which of the following is an advantage of nonstatistical sampling?a. It measures the audit team’s…

A: Non-statistical sampling: It refers to the method of sampling where the selection of the sample is…

Q: In an environment that is highly automated, an auditor determines that it is not possible toreduce…

Q: What are the risks if the auditor concludes controls are operating effectively based on the sample…

A: Definition: Sampling risk: Sampling risk is a risk that arises when the judgments based on the…

Q: In determining the sample size for a test of controls, an auditor should consider the expected…

A: Audit is the process of checking and verifying the books of account of the business in order to…

Q: Define the following factors that affect the determination of sample size: a) Acceptable sampling…

A: There are a number of factors that affect the determination of sample size for an audit. These…

Question

Definition Definition Methods and techniques used by the auditor to gather the appropriate evidence so that a true and fair judgment can be made on the quality of the financial statements of the client. Audit procedures are developed after determining audit objectives, scope, approach, and risk assessment.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Risk of incorrect rejection is defined as _______. the risk that the auditor concludes that a material misstatement does not exist when it does exist the risk that the auditor concludes that a material misstatement exists when it does not exist the risk that an auditor incorrectly rejects a client the risk that management may reject the audit opinion issued by the auditor An advantage of statistical sampling _______. is that it allows an auditor to measure control risk is that it allows an auditor to measure sampling risk is that it allows an auditor to measure inherent risk is that it is cheaper to perform, resulting in lower audit fees for the client
The more assurance the auditor wants, _______. A. the less representative a sample should be of the population, and the more testing the auditor needs to do B. the more representative a sample should be of the population, but the less testing the auditor needs to do to gain efficiency C. the more representative a sample should be of the population, and the more testing the auditor needs to do D. the less representative a sample should be of the population, and the less testing the auditor needs to do
(c)Describe the factors which theauditor should consider whendetermining the size of a sample. (d) Describe to what extent statistical sampling enhances the quality of the audit evidence. (e) Explain how judgementis used in statistical and non-statistical sampling.
1.1.Sampling is important in an audit process. Briefly explain the value of sampling in the audit process. 1.2. Identify and explain the two types of sampling risks?
Which of the following is not a method that auditors use to control their exposure to sampling risk during the examination?a. Determining an appropriate sample size.b. Performing the appropriate audit procedure.c. Ensuring that all items have an equal opportunity to be selected.d. Evaluating sample results using a mathematical basis
Which of the following statements is false? A) Top-stratum items are population items whose book value likely exceed the Sampling Interval and would be all selected for examination and evaluation during the audit. B) Because the auditor knows the full amount of errors in the top stratum (since all items are evaluated), no estimate of errors or projection to the population for the errors in the top stratum is required. C) The auditor's evaluation of the most likely misstatements in the sample reflects the sum of the misstatements from the top-stratum and the projected misstatement derived from the each lower-stratum items D) None of the above
A number of factors influences the sample size for a substantive test of details of an account balance. All other factors being equal, which of the following would lead to a larger sample size? a. Smaller measure of tolerable misstatement. b. Greater reliance on internal control. c. Smaller expected frequency of errors. O d. Greater reliance on analytical procedures.
What is the sample rate of deviation? How does the audit team calculate it?
7) In an environment that is highly automated an auditor determines that it is not possible to reduce detection risk solely by using substantive test of transactions. Under these circumstances the auditor most likely would: Perform test of controls to support a lower level of assessed risk. Increase sample size to reduce sampling risk and detection risk. Adjust the materiality level and consider the effect on inherent risk Apply analytical procedures and consider the effect on control risk
In audit sampling applications, sampling risk isa. A characteristic of statistical sampling applications but not of nonstatistical applications.b. The probability that the audit team will fail to recognize erroneous accounting in the client’sdocumentation.c. The probability that accounting misstatements will arise in transactions and enter theaccounting system.d. The probability that an audit team’s conclusion based on a sample might be differentfrom the conclusion based on an audit of the entire population.
In determining the tolerable deviation rate for a test of controls, the auditors consider: Their planned assessed level of control risk. The sample size. The nature of the test. The expected deviation rate in the population.
What options are available to the audit team if the ULRD is greater than the tolerable rate of deviation?