 Hello and welcome to the session in which we would look at CPA exam questions that deal with audit sampling Audit sampling is a major topic on the CPA exam Don't sit for the CPA exam if you are not very comfortable with this topic audit sampling Now many candidate they may tell you we only got few questions two or three Maximum four questions about audit sampling. You don't have to worry about that topic that much wrong Why because they might get maybe two three four questions in their first testlet and they answer them correctly Therefore they didn't get more Simply put audit sampling is a major topic if the software detect that you are weak in this topic They may give you more questions down the road I mean during the test because you are weak in this major topic So you really want to go into this session the audit exam session well aware of audit sampling inside out Whether it's a test of the testing the control or doing substantive testing So I'm gonna look at few questions here to help you understand this audit sampling specifically I'm gonna you know kind of give you some hints in this session I'm gonna be looking at audit sampling that deals with test of control because you you would have test of control And you would have also substantive testing So we'll look at test of control before we start I just want to remind you that if you are studying for the CPA exam Please check out my website for head lectures calm I do not replace your CPA review course whether you're taken backer Roger Glyme Wiley surgeon or anything else What I can be is I can add the knowledge to your to your CPA review course And I can help you add 10 to 15 points to your CPA exam I help you understand the material This is what I do the difference between what I do in a CPA review course is simple The CPA review course is a review course for head lecture lectures teaches you the material I don't give you any shortcuts. 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I do have other accounting courses Connect with me on LinkedIn and if you're not sure if whether you should sign up or not check out my LinkedIn recommendation people that used my system to pass the CPA exam Please like this recording share it connect with me on Instagram and Facebook Let's take a look at the first question and the first question reads which of the following best illustrate the concept of Sampling risk so you have to understand we have sampling risk and non sampling risk and how should you know? What is a sampling risk versus non sampling risk? Well, if you know what sampling risk is Everything else is non sampling risk. Let's let's let's let's let's put it this way. So what is sampling risk? What is sampling risk? Okay, is it a an auditor may select an audit procedure that are not appropriate to achieve the specific objective Is this a sampling risk? What is sampling sampling is when you select something and You did not select the right thing to examine. Okay? Basically, your sample is not representative That's that's what sampling risk is. That's the definition of it. Well a it's it reads the auditor select an audit procedure It's not the items that you select incorrect. You selected the procedure. That's incorrect. So would that be a sampling risk? I would say not because we're not dealing with the problem is not with the population The problem with the with the procedures that we were doing and we did not select the right one I'll see this is not the answer a is not an Auditor may feel to recognize error and the document examined for the choosing sample Well here it seems we have the right document. We have the right and we have the right population So it has nothing to do with sampling. Just we did not We did not recognize the error. We made we made the wrong judgment Maybe we don't have enough training. We did not evaluate it properly is a sampling risk. It's not sampling risk Because remember sampling risk is when you select the population n and that n is not representative Simply put it's not representative A randomly choosing sample may not be representative of the population as a whole regarding the characteristic being tested I think this is what I've been saying. So you selected a sample And that sample is not representative. It doesn't matter whether you use the right procedure You read it wrong. All right. That doesn't matter here. You are you see the whole sample is incorrect If the sample is incorrect, that's a sampling risk You may use the right procedures here. You may use You may read the conclusion properly, but you're not dealing with the right sample You're not dealing with the right sample. Therefore see represent what a sampling risk is the other one I would say non sampling risk. Let's just make sure these incorrect the documents related to the chosen sample May not be available for inspection here. It's not available altogether That's that's not sampling that you have you have another problem on your hand But that's not a sampling risk. Let's take a look at this question the risk of incorrect acceptance So you have to know what is the risk of incorrect acceptance? We have incorrect acceptance We have incorrect rejection. You have to know what's the risk of that relate to what? Is it a effectiveness of the audit efficiency of the audit? preliminary estimates of the material materiality level or tolerable misstatement When we are dealing with incorrect acceptance or incorrect Incorrect rejection. We are dealing with either effectiveness or efficiency. So basically just knowing a little bit I can eliminate c and d and focus on a and b So when you are dealing with incorrect acceptance and incorrect rejection You are dealing with either effectiveness or efficiency. You have to understand those two. Okay, so incorrect acceptance deals with what is it efficiency or is it effectiveness? What is the difference between the two? Well Effectiveness means you are accepting You are accepting a book value or a control That's not really working properly. Let's assume we're talking about internal control It's not working properly, but you assume it's working properly. That's effectiveness So it's not good. So effectiveness. It's Not good. Whatever you are dealing with it's not good, but you think it's good Okay, and what happened if you think it's good and if it's not good, you're gonna rely on it That's gonna affect the effectiveness of the audit now If you think the control is It's not good So we said effectiveness. It's not good, but you think it's good. That's bad, but efficiency the control is good But you think it's not good That's not a problem. It's it's not a problem relative to a what happened if you don't if the control is good But you don't think it's not good What you do is you don't rely on it you will do more substantive testing What happened is you did more work than you're supposed to that you should have therefore you have an efficiency problem here Incorrect acceptance. You accept it that the control is Is good. Well in reality, it's not good. So it's not good, but you think it's good Therefore it's it's the effectiveness. It's gonna influence the effectiveness and which is it's a more dangerous Problem than a incorrect rejection. Well, you're not efficient. You're gonna do more than what you should have Not a big deal. We we spend more time Okay, but effectiveness guess what we relied on control that it's not good. We assumed it's good We were driving blindly therefore the risk of incorrect acceptance is a deals with effectiveness Okay, incorrect rejection would deal with efficiency because it was good But we we incorrectly rejected the control or dealing with same thing if we're dealing with the book value of an item Okay, we either accept the book value or reject the book value incorrectly Let's take a look at this question For which of the following audit tests would an auditor most likely use Attribute sampling so first you need to know what attribute sampling is actually I gave you a hint early on I told you we're dealing with audit sampling that deals with test of control So attribute sampling deals with test of control and what we're doing is we're looking for a characteristic of the population of interest to the auditor Some characteristics. We're looking for something for the approval by the manager the approval by the Credit manager the approval by the person that's inspecting the time card. We are looking for the approval of the Purchasing department so on and so forth So making an independent estimate of the amount of life or inventory here. We are dealing with amount Amount basically deal with valuation. It's not really attribute sampling. It's dealing with a dollar amount Therefore a is out Examine invoices in support of the valuation again valuation. We're dealing with some dollar amount of the assets addition Selecting a counter sieble for confirmation. That's a substantive Procedure that's not test of control by process of elimination. D is the answer And this is an example of attribute sampling Inspecting employee time card for proper approval by the supervisor. Do we have the supervisor's initial? That's all what you're looking for you're looking for the initial you don't care about the hours You don't care about the dollar amount. You're looking for that attribute to determine Whether the supervisor approves the time card before the company issues issues the check That's all what you're looking for. You're looking at that characteristic at that attribute and this happens during the Learn it testing the internal control attribute sampling. Let's take a look at this question adam smith CPA use statistical sampling to test control procedure What is the benefit of using statistical sampling? It eliminates the use of judgment required of adam because a icps established numerical criteria for this type of testing No way We eliminate a judgment. Okay Okay We you can't eliminate the judgment part. Okay, so a is not right. That's not the benefit of statistical sampling You know, you say I use the statistical sampling. I don't have to use my judgment not at all You have to use your judgment be it increases jones's knowledge of the entities prescribe procedures and their limitation That's going too far. Um, it's statistical sampling. You're only looking at a sample I'm not sure. You know, that's that's that's going too far with this it increases Jones's knowledge. That's not really the purpose of statistical sampling. Okay, so b is out It's required by the generally accepted accounting standard. It's not it's not required It's not required to use statistical sampling. Therefore by process of elimination b is the answer It provides a me a means of mathematically measuring the sampling risk that results from examining Only a part of the data So notice because you are using sampling you're only looking at a part of the data, which is that's why b is incorrect Okay, it doesn't tell you, you know, it can't go too far and that's all what it's doing It's a mathematical measure of the sampling. That's all what you're doing is you are putting a number on the sampling risk You still have to use your judgment. You still have to use your judgment. You cannot eliminate this It's not required by generally accepted accounting standard and you cannot go as far as b. So d is the correct answer At the end of the session, I would like to remind you that audit sampling is an important topic on the exam You cannot set for the audit exam if you are not comfortable 100 with this topic What I can do is I can offer you supplemental material To teach you audit sampling all what I ask you to do if you if you want to, you know, just Kind of make sure what you are doing is correct. Check out my LinkedIn account where I have recommendation from students that used my system specifically for audit sampling to pass the exam Stay safe study hard And good luck