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# IDENTIFICATION AREA:

Name: M. Smith
Filename: Variable.xls
Date Created: May 25, 20X1
INPUT AREA:
Directions:
Part 1: Determine sample size for variables sampling plan.
Go to cell A85.
Part 2: Evaluate sample results.
Go to cell A106.
In the testing of an account balance (e.g inventory, accounts
receivable, etc.), auditors use a statistical sampling approach
known as variables sampling. In variables sampling, the auditor
must contend with two risks: risk of incorrect rejection (IR)
and risk of incorrect acceptance (IA). The steps in variables
sampling are as follows:
(1) Determine sample size:
a. Determine tolerable error (TE).
b. Calculate planned precision (A):
A = TE * R(IR)/[R(IR)+R(IA)]
Where: R(IR) is the factor for the risk
of incorrect rejection.
R(IA) is the factor for the risk
of incorrect acceptance.
c. Calculate sample size (n):
n = [(N * R(IR) * SD)/A]^2
Where: N is population size.
SD is estimated standard deviation.
(2) Evaluate sample results:
a. Calculate achieved precision (Prec):
Prec = N*R(IR)*(sd/(@sqrt(n)))
Where: N is population size.
R(IR) is the factor for the risk
of incorrect rejection.
sd is sample standard deviation.
n is sample size.
Note: If achieved precision (Prec) exceeds planned
precision (A), then you must calculate adjusted
b. Calculate estimated audit value (EAV):
EAV = sample mean * N
c. Calculate decision interval (DI):
DI = EAV +/- Prec
d. Determine whether to accept or reject client's
book value (BV) of the account (e.g. inventory).
If BV is within DI, then accept. If not, reject.
Note: Use the following information for Parts 1 and 2.
Factor for Risk of Factor for Risk of
Level of Incorrect Rejection Incorrect Acceptance
Risk R(IR) R(IA)
----- -------- --------
0.01 2.58 2.33
0.05 1.96 1.65
0.10 1.65 1.29
0.20 1.29 0.85
Consider the following situations for Part 1:
(a) The TE is \$250,000; IR is 10%; IA is 5%; N is 2,000;
and SD is \$500. Calculate sample size (n).
(b) Same as above, but IR is changed from 10% to 5%.
(c) Same as situation (a), but TE is changed from \$250,000
to \$50,000, IA is changed from 5% to 10%, and SD is
changed from \$500 to \$200.
Consider the following situations for Part 2:
(d) Assume N is 5,000; IR is 20%; sd is \$10; and n is 100.
Calculate achieved precision (Prec). Next, assume that
the sample mean is \$499 and client's book value (BV) is
\$2,500,000. Will the auditor accept or reject the
client's BV?
(e) Same as above, but IR is changed from 20% to 10%; and
the client's BV is \$2,486,000; not \$2,500,000.
(f) Same as situation (d), but IR is changed from 20%
to 5%; and the client's BV is \$2,486,000; not \$2,500,000.
INPUT/OUTPUT - PART 1: DETERMINE SAMPLE SIZE
Formulas:
A = TE * R(IR)/[R(IR)+R(IA)]
n = [(N * R(IR) * SD)/A]^2
To compute n, enter values for TE, R(IR), R(IA), N, and SD:
Situations:
(a) (b) (c)
-------- -------- --------
TE 250,000 250,000 50,000
R(IR) 1.65 1.96 1.65
R(IA) 1.65 1.65 1.29
N 2,000 2,000 2,000
SD 500 500 200
A 125,000 135,734 28,061
Sample size (n) 174 209 553
INPUT/OUTPUT - PART 2: EVALUATE SAMPLE RESULTS
To compute Prec, enter values for N, R(IR), sd, and n:
Situations:
(d) (e) (f)
-------- -------- --------
N 5000 5000 5000
R(IR) 1.29 1.65 1.96
sd 10 10 10
n 100 100 100
Prec = 6450 8250 9800
Formula: Prec=N*R(IR)*(sd/(@sqrt(n)))
Enter sample mean and client's book value (BV):
Situations:
(d) (e) (f)
-------- -------- --------
Sample mean = 499 499 499
EAV= 2,495,000 2,495,000 2,495,000
Client's BV = 2,500,000 2,486,000 2,486,000
Lower DI value = 2,488,550 2,486,750 2,485,200
Upper DI value = 2,501,450 2,503,250 2,504,800
Auditor Decision: Accept Reject Accept