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Audit Sampling: Mcgraw-Hill/Irwin
Audit Sampling: Mcgraw-Hill/Irwin
Audit Sampling
McGraw-Hill/Irwin
Qualitative
Quantitative
9-2
9-3
Risk
Sampling risk
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9-4
Nonstatistical sampling
The
9-5
9-5
9-6
9-6
9-7
9-7
9-8
Other Methods of
Sample Selection
Other
methods
Haphazard selection
Select items on an arbitrary basis, but without any
conscious bias
Block selection
Block sample consists of all items in a selected time
period, numerical sequence or alphabetical
sequence
Stratification
An Illustration of Stratification
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910
sampling
Discovery sampling
Classical variables sampling
Mean-per-unit estimation
Ratio estimation
Difference estimation
Probability-proportional-to-size
sampling
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911
9-11
912
913
Sample Size
Significant
Sample
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914
Requirements of Audit
Sampling Plans
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915
Correct
Decision
Extent of Operating
Effectiveness
Inadequate
Incorrect
Decision
(Risk of Assessing
Control Risk
Too High)
Incorrect
Decision
(Risk of Assessing
Control Risk
Too Low)
Correct
Decision
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916
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Sample Size
Sample size using Figure 9-4 (next slide)
=68 (2)
This
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Approach 2
You have tested 68 items, a number not on Table 9-5 (next slide
To be conservative go to next lowest number on table (65) and use it for your
conclusions (we could, but won't interpolate for a more precise answer).
You have met your audit objective. Table 9-5 gives us an answer of 4.6 percent.
What can you say?
"I believe that the deviation rate in the population is less than 4.6 percent. You will be
wrong 5 percent of the time when the deviation rate is exactly 4.6 percent. If the
deviation rate is in excess of 4.6 percent you will be wrong even less than 5 percent of
the time. The planned assessed level of control risk is achieved.
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sampling
Sequential
925
(Stop-or-Go) Sampling
926
The Substantive
Procedure Sample
Indicates
Misstatement in
Account Exceeds
Tolerable Amount
Misstatement in
Account Is Less
Than Tolerable
Amount
Correct
Decision
Incorrect
Decision
(Risk of Incorrect
Acceptance)
Incorrect
Decision
(Risk of Incorrect
Rejection)
Correct
Decision
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927
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928
Population A Population B
2,100
2,100
2,100
2,100
2,100
25
2,000
400
75
Mean
2,100
2,100
Standard
deviation
-0-
8,000
3,395
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929
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Incorrect
Acceptance
Coefficient
Incorrect
Rejection
Coefficient
1.0
2.33
2.58
4.6
1.68
2.00
5.0
1.64
1.96
10.0
1.28
1.64
15.0
1.04
1.44
20.0
.84
1.28
25.0
.67
1.15
30.0
.52
1.04
40.0
.25
.84
50.0
.00
.67
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Tolerable misstatement
Planned ASR =
$364,000
Planned ASR =
= $200,000
1 + (1.64 / 2.00)
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Planned
allowance
for
sampling
risk
$200,000
= 225 Accounts
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934
Adjusted allowance
for sampling risk
=
Tolerable
_ (Population size * Incorrect acceptance coef. * Sample stan. dev.)
misstatement
Sample size
This formula adjusts the allowance for sampling risk to consider the standard
deviation of the audited values in the sample. It holds the risk of incorrect
acceptance at its planned level.
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misstatement
= $364,000
Sample size
_
= $189,067
Estimate of total
audited value
$6,100,000
[$5,910,933
+
+
to
Adjusted allowance
for sampling risk
$189,067
$6,289,067]
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Acceptance Interval
Figure 9-12
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Difference Estimation
Difference
Projected
Misstatement
=
Sample Net Misstatement * Pop. Items
Sample items
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Ratio Estimation
Use
Projected
Misstatement
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Plan Sample:
Population:
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940
= 40 items
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Nonstatistical Sampling--Evaluation
of Sample Results
941
Sample results:
40 accounts in sample
$350 net overstatement
$60,000 book value of sample items
Projected misstatement:
= [Sample net misstatement]
[ Book value of sample ]
= [ $350 ] X $200,000
[$60,000]
= $1,167
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Use
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size =
$6,250,000 * 3.0
$364,000 - ($50,000 * 1.6)
66
= $6,250,000
66
= $95,000 (approximately)
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Audit Risk
AR = IR x CR x DR
where
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