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Audit Sampling Procedure and Techniques for Financial Balances

Understand and apply audit sampling methods for testing financial balances, sample selection, error estimation, and decision-making processes in auditing.

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Audit Sampling Procedure and Techniques for Financial Balances

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  1. CHAPTER 14 AUDIT SAMPLING FOR TESTS OF DETAIL OF BALANCES

  2. NONSTATISTICAL SAMPLING PLAN • STATE OBJECTIVES OF TEST • EVIDENCE OF MISSTATEMENT IN ACCOUNT BALANCE • DECIDE IF SAMPLING APPLIES • DEFINE MISSTATEMENT CONDITIONS • DEFINE POPULATION • STRATIFICATION • SAMPLING UNIT • LOGICAL UNIT – ITEM MAKING UP BALANCE • DOLLAR IN POPULATION • TOLERABLE MISSTATEMENT • ACCEPTABLE RISK OF INCORRECT ACCEPTANCE • FIGURE 14-3, PAGE 488

  3. DETERMINE INITIAL SAMPLE SIZE • FIGURE 14-4, PAGE 489 • SELECT SAMPLE • PERFORM AUDIT PROCEDURES • GENERALIZE FROM SAMPLE TO POPULATION • POINT ESTIMATE OF POPULATION MISSTATEMENT • JUDGMENT REGARDING ALLOWANCE FOR SAMPLING RISK – STATISTICAL SAMPLING • TOLERABLE MISSTATEMENT – NONSTATISTICAL • ANALYZE MISSTATEMENTS • ACTION TO REJECT POPULATION • RELATE TO OTHER TESTS • EXPAND AUDIT TESTS • INCREASE SAMPLE SIZE • ADJUST ACCOUNT BALANCE • REQUEST CLIENT ASSISTANCE • MODIFY OPINION

  4. MONETARY UNIT SAMPLING • OTHER NAMES • DOLLAR UNIT SAMPLING • PROBABLITITY-PROPORTIONATE TO SIZE SAMPLING • DIFFERENCES BETWEEN NONSTATISTICAL SAMPLING • INDIVIDUAL DOLLAR SAMPLING UNIT • POPULATION SIZE IS NUMBER OF “NORMAL” DOLLARS IN BALANCE • PRELIMINARY ESTIMATE OF MATERIALITY • SAMPLE SIZE USING FORMULA • SAMPLE SELECTION USING PPS • PROJECT TO POPULATION USING MUS • NO MISSTATEMENTS FOUND • SOME MISSTATEMENTS FOUND

  5. GENERALIZE TO POPULATION- NO EXCEPTIONS • POPULATION = $1,200,000 • SAMPLE SIZE = 100 • ACCEPTABLE RISK OF INCORRECT ACCEPTANCE = 5% • USE TABLE ON PAGE 425 • INTERSECTION OF 100 SAMPLE SIZE AND 0 MISSTATMENTS = 3% • CONCLUSION IS THAT THERE IS A 5% RISK THAT MORE THAN 3% OF DOLLARS IN POPULATION ARE MISSTATED • UPPER AND LOWER BOUND = $36,000 (3%X$1,200,000) IS A CONSERVATIVE ESTIMATE OF MISSTATEMENT

  6. GENERALIZE TO POPULATION – SOME MISSTATEMENTS • SAME ASSUMPTIONS AS ABOVE • OVERSTATEMENTS AND OVERSTATEMENTS ARE SEPARATED, THEN COMBINED • DIFFERENT MISSTATEMENT ASSUMPTION MADE FOR EACH MISSTATEMENT INCLUDING ZERO MISSTATEMENTS • LAYERS OF COMPUTED UPPER EXCEPTION RATE FROM ATTRIBUTES SAMPLING TABLE • MISSTATEMENT ASSUMPTION ASSOCIATED WITH EACH LAYER • ADJUSTMENT FOR OFFSETTING AMOUNTS • DECIDE ACCEPTABLITY OF POPULATION

  7. DETERMINE SAMPLE SIZE • MATERIALITY • ESTIMATED PERCENT MISSTATEMENT FOR POPULATION ITEMS CONTAINING MISSTATEMENT • ACCEPTABLE RISK OF INCORRECT ACCEPTANCE • POPULATION VALUE • ESTIMATE POPULATION EXCEPTION RATE • EXAMPLE PAGE 502

  8. VARIABLES SAMPLING • SAMPLING DISTRIBUTIONS • STATISTICAL INFERENCE • VARIABLE SAMPLING TECHNIQUES • MEAN-PER-UNIT (MPU) • DIFFERENCE ESTIMATION • RATIO ESTIMATION • POINT ESTIMATE OF POPULATION VALUES • MPU • TOTAL AUDIT VALUE IN SAMPLE / SAMPLE SIZE (#0 • AVERAGE AUDIT VALUE X NUMBER ITEMS IN POP. • DIFFERENCE ESTIMATION • TOTAL MISSTATEMENT IN SAMPLE / SAMPLE SIZE (#) • AVERAGE MISSTATEMENT X ITEMS IN POPULATION • RATIO ESTIMATION • TOTAL MISTATEMENT IN SAMPLE / SAMPLE SIZE ($) • PERCENTAGE OF MISSTATEMENT X POPULATION ($)

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