Sampling terminology refers to the individual items

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Sampling terminology refers to the individual items to be tested as  sampling units The sampling units make up the population Nonsampling and sampling risk
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Tools to gather audit evidence 15:19 o The auditor could make an error about the characteristics because: Did not carry out procedures or inappropriately diagnosed problems Made an incorrect inference from a sample that was not  representative of the population o Nonsampling risk includes all aspects of audit risk that are not due to  sampling Errors in judgments about the correctness of a population that are  due to carelessness in the performance of the audit are referred to  as  nonsampling risks . o Sampling risk occurs when the auditor draws a conclusion from a  sample that is not representative of the population Sampling risk is defined as the risk that an inference drawn from a  sample will be incorrect because the sample is too small or  otherwise not representative of the characteristics that exist in the  underlying population o Sample size is determine by: Size of the misstatement (tolerable misstatement) Confidence level desired  o Sampling risk related to tests of control procedures Risk of assessing control risk too high (efficiency) Risk of assessing control risk too low (effectiveness) o Sampling risks related to substantive testing (two potential risks) Risk of incorrect acceptance (effectiveness) – concluding that the  book value is correct when it actually is materially misstated Risk of incorrect rejection (efficiency) – concluding that the book  value is materially misstated when it is not  o Sampling risks for tests of control procedures  Actual state of controls Auditor’s assessment of control risk Effective Not effective Low Correct conclusion Incorrect acceptance of internal control reliability Control failures in the population are higher than the sample indicates (referred to as the risk of assessing control risk too low). Increases the likelihood that misstatements occur and will not be detected during the audit
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Tools to gather audit evidence 15:19 High Incorrect rejection of control reliability Control failures in the population are lower than the sample indicates (referred to as the risk of assessing control risk too high). Results in more audit testing taking place. Sampling risks for direct tests of account balance Condition of the book value Auditor’s conclusion based on sample evidence Does not contain a material misstatement Contains a material misstatement Book value does not contain a material misstatement Correct conclusion Risk of incorrect acceptance (leads to audit ineffectiveness) Book value may contain a material misstatement Risk of incorrect rejection
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  • Spring '10
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