ACC 406 AUDIT MIDTERM 2 STUDY GUIDE
Allowance for sampling risk - Answer -The uncertainty that results from sampling; the
difference between the expected mean of the population and the tolerable deviation or
misstatement
Attribute sampling - Answer -Sampling used to estimate the proportion of a population
that possesses a specified characteristic
Audit sampling - Answer -The selection and evaluation of less than 100 percent of the
population of audit relevance such that the auditor expects the items selected to be
representative of the population and, thus, likely to provide a reasonable basis for
conclusions about the population
Classical variables sampling - Answer -The use of normal distribution theory to
estimate the dollar amount of misstatement for a class of transactions or an account
balance
Desired confidence level - Answer -The probability that the true but unknown measure
of the characteristic of interest is within specified limits
Expected population deviation rate - Answer -The deviation rate that the auditor
expects to exist in the population
Monetary-unit sampling - Answer -Attribute-sampling techniques used to estimate the
dollar amount of misstatement for a class of transactions or an account balance
Nonsampling risk - Answer -The risk that the auditor reaches an erroneous conclusion
Nonstatical sampling - Answer -Audit sampling that relies on the auditor's judgment to
determine sample size, select the sample, and/or evaluate the results for the purpose of
reaching a conclusion about the population
Representative sample - Answer -The evaluation of the sample will result in
conclusions that are similar to those that would be drawn if the same procedures were
applied to the entire population
Risk of incorrect acceptance - Answer -The risk that the sample supports the
conclusion that the control is operating effectively when it is not or that the recorded
account balance is not materially misstated when it is materially misstated
Risk of incorrect rejection - Answer -The risk that the sample supports the conclusion
that the control is not operating effectively when it actually is or that the recorded
account balance is materially misstated when it is not materially misstated
, Sampling risk - Answer -The possibility that the sample drawn is not representative of
the population and that, as a result, the auditor reaches an incorrect conclusion about
the reliability of the control, the account balance, or class of transactions based on the
sample.
Sampling unit - Answer -The individual items constituting a population being sampled
Statistical sampling - Answer -Sampling that uses the laws of probability to select and
evaluate the results of an audit sample, thereby permitting the auditor to quantify the
sampling risk for the purpose of reaching a conclusion about the population
Tolerable deviation rate - Answer -The maximum deviation rate from a prescribed
control that the auditor is willing to accept without altering the planned assessed level of
control risk
Confidence bound - Answer -Measure of sampling risk added and subtracted to the
projected misstatement to form a confidence interval
Expected misstatement - Answer -The amount of misstatement that the auditor
believes exists in the population
Factual misstatement - Answer -Detected misstatements about which there is no doubt.
In a sampling context, these are the differences observed in the sample that are used to
compute the projected misstatement
Projected misstatement - Answer -The extrapolation of sample results to the
population. The projected misstatement represents the auditor's "best estimate" of the
likely misstatement in the sampling population
Upper misstatement limit - Answer -The total of the projected misstatement plus the
allowance for sampling risk
Customer sales order - Answer -contains details of the type and quantity of products or
services ordered by the customer
Credit approval form - Answer -When customer purchases for the first time, the client
should have a formal procedure to check credit, usually with this form
Open-order report - Answer -Report of all customers for which processing has not been
completed, perhaps because items ordered are out of stock
Shipping document - Answer -Generally serves as bill of lading, contains information on
type of product shipped, quantity, etc. 2 copies, one to customer, one to initiate billing
Sales invoice - Answer -Used to bill customer, contains type of product, quantity, price,
terms of trade. Original sent to customer, copies distributed to other departments
Allowance for sampling risk - Answer -The uncertainty that results from sampling; the
difference between the expected mean of the population and the tolerable deviation or
misstatement
Attribute sampling - Answer -Sampling used to estimate the proportion of a population
that possesses a specified characteristic
Audit sampling - Answer -The selection and evaluation of less than 100 percent of the
population of audit relevance such that the auditor expects the items selected to be
representative of the population and, thus, likely to provide a reasonable basis for
conclusions about the population
Classical variables sampling - Answer -The use of normal distribution theory to
estimate the dollar amount of misstatement for a class of transactions or an account
balance
Desired confidence level - Answer -The probability that the true but unknown measure
of the characteristic of interest is within specified limits
Expected population deviation rate - Answer -The deviation rate that the auditor
expects to exist in the population
Monetary-unit sampling - Answer -Attribute-sampling techniques used to estimate the
dollar amount of misstatement for a class of transactions or an account balance
Nonsampling risk - Answer -The risk that the auditor reaches an erroneous conclusion
Nonstatical sampling - Answer -Audit sampling that relies on the auditor's judgment to
determine sample size, select the sample, and/or evaluate the results for the purpose of
reaching a conclusion about the population
Representative sample - Answer -The evaluation of the sample will result in
conclusions that are similar to those that would be drawn if the same procedures were
applied to the entire population
Risk of incorrect acceptance - Answer -The risk that the sample supports the
conclusion that the control is operating effectively when it is not or that the recorded
account balance is not materially misstated when it is materially misstated
Risk of incorrect rejection - Answer -The risk that the sample supports the conclusion
that the control is not operating effectively when it actually is or that the recorded
account balance is materially misstated when it is not materially misstated
, Sampling risk - Answer -The possibility that the sample drawn is not representative of
the population and that, as a result, the auditor reaches an incorrect conclusion about
the reliability of the control, the account balance, or class of transactions based on the
sample.
Sampling unit - Answer -The individual items constituting a population being sampled
Statistical sampling - Answer -Sampling that uses the laws of probability to select and
evaluate the results of an audit sample, thereby permitting the auditor to quantify the
sampling risk for the purpose of reaching a conclusion about the population
Tolerable deviation rate - Answer -The maximum deviation rate from a prescribed
control that the auditor is willing to accept without altering the planned assessed level of
control risk
Confidence bound - Answer -Measure of sampling risk added and subtracted to the
projected misstatement to form a confidence interval
Expected misstatement - Answer -The amount of misstatement that the auditor
believes exists in the population
Factual misstatement - Answer -Detected misstatements about which there is no doubt.
In a sampling context, these are the differences observed in the sample that are used to
compute the projected misstatement
Projected misstatement - Answer -The extrapolation of sample results to the
population. The projected misstatement represents the auditor's "best estimate" of the
likely misstatement in the sampling population
Upper misstatement limit - Answer -The total of the projected misstatement plus the
allowance for sampling risk
Customer sales order - Answer -contains details of the type and quantity of products or
services ordered by the customer
Credit approval form - Answer -When customer purchases for the first time, the client
should have a formal procedure to check credit, usually with this form
Open-order report - Answer -Report of all customers for which processing has not been
completed, perhaps because items ordered are out of stock
Shipping document - Answer -Generally serves as bill of lading, contains information on
type of product shipped, quantity, etc. 2 copies, one to customer, one to initiate billing
Sales invoice - Answer -Used to bill customer, contains type of product, quantity, price,
terms of trade. Original sent to customer, copies distributed to other departments
