Chapter 9
achieved upper limit The maximum likely control procedure failure rate in the population based on an attribute estimation sample.
attribute A characteristic of the population of interest to the auditor. Most often it is a control procedure, but it could also be an operational aspect, such as promptly responding to customer inquiries.
attribute sampling A statistical sampling method used to estimate the most likely and maximum rate of control procedure failures based on selecting and auditing one sample.
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 upper misstatement limit when no misstatements are detected in a MUS sample; computed by multiplying the sampling interval by the reliability factor.
error expansion factor A factor used in determining the sampling interval/size for MUS sampling to provide for additional sampling error when some misstatement is expected.
expected failure rate The auditor’s best estimate of the percentage of transactions processed for which the examined control procedure is not operating effectively.
expected misstatement The amount of misstatement that the auditor estimates is in the population.
generalised audit software (GAS) A computer program that contains general modules for reading existing computer files and manipulating the data contained in the files to accomplish audit tasks; designed to build an easy user interface that translates user instructions into program code to carry out desired audit tests by reading the client’s file and performing the necessary program steps.
haphazard selection Selection of sample items with no conscious bias; not randomly based and therefore not to be used for statistical sampling.
incremental allowance for sampling error Provision for additional sampling error when misstatements are detected in a PPS sample. Factors are determined from tables derived from the underlying sampling distribution.
misstatement For substantive sampling purposes, the differences in recorded values and audited values that affect the account total.
monetary unit sampling (MUS) A sampling method based on attribute estimation sampling but involving dollar misstatements rather than failure rates. MUS is most effective when auditing for the overstatement of a population and when no or few misstatements are expected. MUS is often referred to as probability proportional to size (PPS).
most likely misstatement (MLM) In PPS sampling, the sum of the top-stratum misstatements and the projection of the lower-stratum misstatements. It is the auditor’s best estimate of the total misstatement in the population and should be posted to the summary of possible adjustments.
non-sampling risk The risk of improperly auditing sampled items or misjudging inherent or control risk; includes judgement errors in selecting a sampling method or audit procedure.
population The 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 control procedures.
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.
random-based selection Sample selection methods in which each item in the population has an equal chance of being selected; only random-based samples can be statistically evaluated.
reliability factors Factors related to the detection risk used to determine the sample interval/size for MUS sampling.
risk of incorrect acceptance The risk of concluding from a sample that the book value is not materially misstated when in fact it is.
risk of incorrect rejection The risk of concluding from a sample that the book value is materially misstated when in fact it is not.
sampling error The possibility that the projected misstatement will differ from the actual, but unknown, misstatement in the population.
sampling risk The probability that a sample is not representative of the population, which can lead the auditor to the wrong conclusion about the population.
sampling units The individual auditable elements, as defined by the auditor, that constitute the population, such as customers’ balances or individual unpaid invoices.
statistical sampling The application of probability theory and statistical inference 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 relatively homogeneous groups called strata. Stratification can be performed judgementally by the auditor but is most often performed with the assistance of generalised audit software to achieve optimum sampling efficiency.
tainting percentage In MUS/PPS sampling, the amount of misstatement as a percentage of the sample item’s book value. The tainting percentage is calculated individually for each sampled item.
tolerable failure rate The auditor’s assessment of the maximum rate of control procedure failure that can occur and still allow the auditor to rely on the control.
tolerable misstatement The maximum amount of misstatement the auditor can accept in the population.
top stratum Population items whose book values exceed the sampling interval and are therefore all included in the test. The top stratum consists of all account balances exceeding a specific dollar amount.
upper misstatement limit (UML) The maximum dollar overstatement that might exist in a population, given the sample errors noted, at the specified level of detection risk.