1)

aeor
The lower the tolerable misstatement, the lar-
Tolerable misstatement Inverse ger the sample
Allowable risk of incorrect accep- Inverse The higher the allowable risk of incorrect ac-
Allowable Risk of Incorrect Acceptance
ceptance, the lower the expected reliability,
I
The allowable risk of incorrect acceptance can be calculated based on other factors
tance and the smaller the sample
1) Determine acceptable audit risk (AR)
Expected amount of 2)
misstatement Direct
Measure inherent risk (IR) The higher the expected amount of misstate-
3) Assess level of control risk (eR)
4) Use AR, IR, ment,acceptable
& eR to calculate the larger the sample
level of detection risk
(OR)
AR + (JR x eR)
Assessed level of control risk
= ORDirect The higher the assessed level of control risk,
the larger the sample
5) At various levels of OR, measure
Direct the allowable riskthe
The larger of population,
incorrect acceptance
the larger the sam-
Population size Allowable level of incorrect acceptance = AR + (IR
pie size x eR x OR)
Example
If AR = 5%, IR = 100%, & eR is assessed at 50%
OR = .05 + (1.00 x .50) = .10 or 10%
If OR is set at level
Allowable 30% of incorrect acceptance = .05 (1.00 x .50 x .30) = .333 or 33 1/3%

Focus on
Audit Sampling - Module 5 242

Calculating Sample Size

Various factors affgGt amplg sze

Relationship to
Ft sample size Effect

Focus on
Audit Sampling - Module 5 243