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AUDIT SAMPLING FOR TESTS OF CONTROLS AND SUBSTANTIVE TESTS OF TRANSACTIONS

AUDIT SAMPLING FOR TESTS OF CONTROLS AND SUBSTANTIVE TESTS OF TRANSACTIONS. 15. IF YOUR ARE NOT GOING TO BELIEVE IT, DON’T USE IT. Characteristics in the sample of audit interest are approximately the same as those of the population. Audit Sampling. Representative Samples.

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AUDIT SAMPLING FOR TESTS OF CONTROLS AND SUBSTANTIVE TESTS OF TRANSACTIONS

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  1. AUDIT SAMPLING FOR TESTS OF CONTROLS AND SUBSTANTIVE TESTS OF TRANSACTIONS 15 IF YOUR ARE NOT GOING TO BELIEVE IT, DON’T USE IT

  2. Characteristics in the sample of audit interest are approximately the same as those of the population. Audit Sampling Representative Samples 1. Nonsampling risk (nonsampling error) occurs when audit tests do not uncover existing exceptions in the sample. 2. Sampling risk (sampling error) is an inherent part of sampling that results from testing less than the entire population.

  3. Probabilistic Versus Nonprobabilistic Sample Selection Nonprobabilistic (judgmental) sample selection: 1. Directed sample selection 2. Block sample selection 3. Haphazard sample selection Probabilistic sample selection: 1. Simple random sample selection 2. Systematic sample selection 3. Stratified sample selection

  4. Directed Sample Selection: Selection of items in the sample based on some judgmental criteria established by the auditor. Items Most Likely to Contain Misstatements Items Containing Selected Population Characteristics Large Dollar Coverage

  5. Block Sample Selection: Selection of several items in sequence. Haphazard Sample Selection: Selection of items without any bias on the part of the auditor.

  6. Simple Random Sample Selection: Every possible combination of elements in the population that has an equal chance of constituting the sample. • Random Number Tables • Computer Generation of • Random Numbers

  7. Systematic Sample Selection: The auditor calculates an interval and then methodically selects the items for the sample. Probability Proportional to Size: Take a sample where the probability of selecting any individual population item is proportional to its recorded amount. Stratified Sample Selection: Divided the population into subpopulations by size and take large sample of the larger subpopulations.

  8. Statistical Versus Nonstatistical Sampling Statistical sampling allows the quantification (measurement) of sampling risk in planning the sample (Step #1) and evaluating the results (Step #3). In nonstatistical sampling, the auditor selects items that he or she believes will provide the most useful information in the circumstances.

  9. Plan the Sample  State the objectives of the audit test. (in this Ch., it is to test controls - TOC’s)  Decide whether audit sampling applies. Define attributes and exception conditions. Define the population. Define the sampling unit. Continued

  10. Plan the Sample  Specify the tolerable exception rate. Specify acceptable risk of assessing control risk too low. Estimate the population exception rate. Determine the initial sample size.

  11. Select the Sample and Perform the Audit Procedures

  12. Evaluate the Results • Generalize from the sample to the population. • Analyze exceptions. • Decide the acceptability of the population.

  13. Use of the Tables 1. Select the table corresponding to the ARACR. 2. Locate the TER at the top of the table. 3. Locate the EPER in the far left column. 4. Read down the appropriate TER column until it intersects with the appropriate EPER row. The number at the intersection is the initial sample size.

  14. Terms Used in Audit Sampling TABLE 14 - 1

  15. TABLE 14 - 3 Guidelines for ARACR and TER for Nonstatistical Sampling: Tests of Controls

  16. TABLE 14 - 4 Guidelines for ARACR and TER for Nonstatistical Sampling: Substantive Tests of Transactions

  17. TABLE 14 - 5 Effect on Sample Size of Changing Factors

  18. FIGURE 14 - 2 Summary of Audit Sampling Steps

  19. FIGURE 14 - 3 Attributes Sampling Data Sheets: Attributes

  20. FIGURE 14 - 4 Inspection of Sample Items for Attributes

  21. FIGURE 14 - 6 Analysis of Exceptions

  22. ESSENTIAL TERMS • Acceptable risk of assessing • control risk too low (ARACR) • Attribute • Attributes sampling • Audit sampling • Block sample selection • Computed upper exception • rate (CUER) • Directed sample selection • Estimated population exception • rate (EPER) • Exception rate • Haphazard sample selection • Initial sample size • Judgmental sampling • Nonprobabilistic sample selection • Nonsampling risk • Nonstatistical sampling • Occurrence rate • Probabilistic sample selection • Random number table • Random sample • Representative sample • Sample exception rate (SER) • Sampling distribution • Sampling risk • Systematic sample selection • Tolerable exception rate (TER)

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