CHAPTER 8 Specialized Audit Tools: Sampling and Generalized Audit

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Attribute
A characteristic of the population of interest to the auditor.
Attributes sampling
A statistical sampling method used to estimate the rate of control
procedure failures based on selecting one sample and performing the
appropriate audit procedure.
Audit sampling
The application of an audit procedure to less than 100% of the items
within an account balance or class of transactions for the purpose of
evaluating some characteristic of the balance or class.
Basic precision
The amount of uncertainty associated with testing only a part of the
population (sampling risk). Basic precision is calculated as the
sampling interval multiplied by a confidence factor.
Block sampling
A sampling technique that involves selecting a sample that consists of
contiguous population items, such as selecting transactions by day or
week.
Expected misstatement
The level of misstatement that the auditor expects to detect, and it is
based on projected misstatements in prior-year audits, results of other
substantive tests, audit judgment, and knowledge of changes in
personnel and the accounting system.
Expected population deviation rate
An anticipation of the deviation rate in the entire population. Also
referred to as the expected failure rate.
Factual misstatements
Misstatements that have been specifically identified and about which
there is no doubt. Also referred to as known misstatements.
Generalized audit software (GAS)
Software programs designed specifically for auditors.
Haphazard sampling
A nonstatistical sample selection method that attempts to approximate
a random selection by selecting sampling units without any conscious
bias, or special reason for including or omitting certain items from the
sample.
Incremental allowance for sampling risk
An increase in the total estimated misstatement caused by the
statistical properties of misstatements detected in the lower-stratum.

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Logical unit
The balance or transaction that includes the selected dollar in a
monetary unit sample.
Lower-stratum
Items that are not in the top-stratum.
Misstatement
An error, either intentional or unintentional, that exists in a transaction
or financial statement account balance. For substantive sampling
purposes, a misstatement involves differences between recorded
values and audited values.
Monetary Unit Sampling (MUS)
A sampling method based on attributes estimation sampling, but
involving dollar misstatements rather than failure rates. MUS is often
referred to as probability proportional to size (PPS) sampling.
Nonsampling risk
The risk that the auditor reaches an erroneous conclusion for any
reason not related to sampling risk.
Nonstatistical sampling
The application of auditor judgment and experience in a sample
application to assist the auditor in determining an appropriate sample
size and in evaluating the sample results.
Population
A group of transactions or the items that make up an account balance
for which the auditor wants to estimate some characteristic, such as
the effectiveness of a control procedure or estimate the extent of
misstatement in an account.
Probability proportional to size (PPS) sampling
A sampling selection method in which each item in the population has
a probability of being
included in the sample proportionate to the dollar value of the item.
Projected misstatement
The best estimate of the actual amount of dollar misstatements in the
population based on projecting the sample results to the population.
The projected misstatement is calculated as the sampling interval
multiplied by the tainting percentage. Also see likely misstatement or
most likely misstatement.
Risk of assessing control risk too high
See risk of incorrect rejection of internal control reliability.
Risk of assessing control risk too low
See risk of incorrect acceptance of internal control reliability.

CHAPTER 8 Specialized Audit Tools: Sampling and Generalized Audit

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Risk of incorrect acceptance of internal control reliability
The risk that the auditor will conclude that the state of internal controls
is effective when internal controls are actually not effective (also
referred to as the risk of assessing control risk too low).
Risk of incorrect acceptance of book value
The risk that the auditor will conclude that the account balance does
not contain a material misstatement when the account balance
actually does contain a material misstatement.
Risk of incorrect rejection of internal control reliability
The risk that the auditor will conclude that the state of internal controls
is not effective when internal controls are actually effective (also
referred to as the risk of assessing control risk too high).
Risk of incorrect rejection of book value The risk that the auditor
will conclude that the account balance contains a material
misstatement when the account balance actually does not contain a
material misstatement.
Risk of overreliance
See risk of incorrect acceptance of internal control reliability.
Risk of underreliance
See risk of incorrect rejection of internal control reliability.
Sampling risk
The risk that the auditors conclusion based on a sample might be
different from the conclusion he or she would reach if the test were
applied in the same way to the entire population.
Sampling units
The individual items to be tested.
Simple random sampling
Selecting a random sample by matching random numbers generated
by a computer or selected from a random number table with, for
example, document numbers such as an invoice or a purchase order.
Statistical sampling
The application of probability theory and statistical inference, along
with auditor judgment and experience, in a sample application to assist
the auditor in determining an appropriate sample size and in
evaluating the sample results.
Stratification
Dividing the population into two or more subgroups.
Systematic random sampling

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This sampling technique involves systematic sampling in which the
first item is selected randomly from the interval.

Systematic sampling
This sampling technique involves dividing the number of physical units
in the population by the sample size to determine a uniform interval; a
random starting point is selected in the first interval and one item is
selected throughout the population at each of the uniform
intervals after the starting point.
Tainting percentage
The percentage of misstatement present in a logical unit, such as the
sample items book value. The tainting percentage equals the amount
of misstatement in the item divided by the items
recorded amount.
Tolerable misstatement
A monetary amount set by the auditor in respect of which the auditor
seeks to obtain an appropriate level of assurance that the monetary
amount set by the auditor is not exceeded by the actual misstatement
in the population. In practical terms, a tolerable misstatement is the
maximum amount of misstatement the auditor can accept in the
population without requiring an audit adjustment or a qualified audit
opinion.
Tolerable rate of deviation
A rate of deviation set by the auditor in respect of which the auditor
seeks to obtain an appropriate level of assurance that the rate of
deviation set by the auditor is not exceeded by the actual rate of
deviation in the population. Also referred to as the tolerable failure
rate.
Top-stratum
Population items whose book values exceed the sampling interval and
are therefore all included in the sample. The top-stratum consists of all
account balances exceeding a specific dollar amount.