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Chapter 13: Audit Sampling Concepts: Auditing: The Art and Science of Assurance Engagements
Chapter 13: Audit Sampling Concepts: Auditing: The Art and Science of Assurance Engagements
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Purpose of Sampling
Sampling is a method of obtaining information that will permit an estimate of the value or quality of a population by examining only a portion of the population.
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Use of Sampling
The nature and materiality of the balance or class of transactions does not demand a 100% audit. A decision must be made about the balance or class of transactions. The time and cost to audit 100% of the population would be too great.
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Representative Sampling
Definition: The characteristics in the sample of audit interest are approximately the same as those of the population.
(Continued)
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Statistical Sampling
Sampling that uses the laws of probability for selecting and evaluating a sample from a population for the purposes of reaching a conclusion about the population selected at random statistical calculations are used to measure and express the results
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Sampling Process
For both statistical and non-statistical methods, the four main parts are:
1. 2. 3. 4. Planning the sample Selecting the sample Performing the tests Evaluating the results
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Test of detail:
Auditor wants to determine the maximum amount of overstatement and understatement that could exist based on the sample
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Define exceptions Define the control Normally, any or errors deviation (an exception) monetary difference (error)
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Define exceptions or Sale made that causes Confirmed amount errors customer balance to different from exceed credit limit amount in customer account
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Test of details:
If MUS, would be the individual dollar For non-statistical sampling, it is likely the unit making up the balance, e.g. an unpaid invoice
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Test of details
Materiality is used to determine the tolerable misstatement amount for the audit of each account These decisions require the use of professional judgment.
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Test of details
Acceptable Risk of Incorrect Acceptance (ARIA) is the risk the auditor will take of accepting a balance as correct when the true misstatement is greater than materiality (Continued)
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Test of details
If ARIA changes from 10% to 5%, sample size increases, since assurance required increases When controls are good (control risk is low), ARIA can be increased
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Test of details
Provide an advance estimate of the total dollar error (misstatements) in the population Use prior year data and professional judgment.
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Test of details
Were the misstatements caused by control exceptions? (need to reassess control risk? Is additional substantive testing required?
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Test of details
Compare the difference between the projection to the population and materiality Use decision rule for statistical sampling
(Continued)
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