books released on Audit Sampling

Here are some books on audit sampling that have been released:

1. Audit Sampling: An Introduction, by Dan M. Guy, D. R. Carmichael, and O. Ray Whittington

2. Sampling Techniques for Auditing and Assurance Services, by William P. LaFond and Tommie W.
Singleton
3. Sampling for Internal Auditors, by Dan M. Guy and D. R. Carmichael
4. Sampling and Statistical Methods for Accountants, by William F. Messier Jr. and Steven M. Glover
5. Auditing and Assurance Services: A Systematic Approach, by William F. Messier Jr., Steven M. Glover,
and Douglas F. Prawitt
6. Sampling Techniques for Financial Statement Audits, by Gary A. Porter and Curtis C. Verschoor
7. Sampling in Auditing, by William A. Hillison and Roger D. Martin

I hope this helps!

Tell me the development process of audit sampling

The development process of audit sampling typically involves the following steps:

1. Determine the audit objective: The auditor must first determine the audit objective and the specific
assertions that need to be tested. This will help in selecting the appropriate sampling method and
sample size.
2. Define the population: The population is the group of items or transactions from which the sample
will be drawn. The auditor must define the population and ensure that it is complete and accurate.
3. Determine the sampling method: There are two main sampling methods used in auditing: statistical
and non-statistical sampling. The auditor must select the appropriate method based on the nature of
the audit objective and the population.
4. Determine the sample size: The sample size is determined based on the level of risk, the desired level
of confidence, and the tolerable error rate. The auditor must ensure that the sample size is sufficient
to achieve the audit objective.
5. Select the sample: The auditor must randomly select items from the population to form the sample.
This is done to ensure that the sample is representative of the population and unbiased.
6. Perform the audit procedures: The auditor must perform the audit procedures on the sample items
to test the specific assertions. The results of the sample are then projected to the population as a
whole.
7. Evaluate the results: The auditor must evaluate the results of the sample and determine whether the
evidence obtained supports the audit objective. If the results are inconclusive or do not support the
objective, the auditor may need to expand the sample size or change the sampling method.
8. Document the sampling process: The auditor must document the sampling process, including the
audit objective, population, sampling method, sample size, and results. This documentation is
necessary to provide evidence that the audit was conducted in accordance with professional
standards.
Overall, the development process of audit sampling involves careful planning, selection of
appropriate methods and sample sizes, and thorough documentation of the sampling process and
results.

How significant of the latest audit sampling technique

The latest audit sampling techniques are significant because they allow auditors to improve the
efficiency and effectiveness of their audits. These techniques are based on statistical sampling theory,
which provides a solid foundation for making reliable inferences about the population being
sampled.

Some of the latest audit sampling techniques include stratified sampling, probability proportional to
size sampling, and systematic sampling. These techniques can be used to target specific areas of the
population that are deemed to be higher risk, and can help auditors to focus their testing efforts
where they are most needed.

Another significant development in audit sampling is the use of data analytics and machine learning
algorithms to analyze large datasets. These techniques can be used to identify patterns and
anomalies in the data, which can help auditors to identify potential issues and areas of risk more
quickly and efficiently.

Overall, the latest audit sampling techniques are significant because they enable auditors to conduct
more effective and efficient audits, which can ultimately lead to higher quality financial reporting and
increased confidence in the audit process.

How to define audit sampling

Audit sampling refers to the process of selecting a subset of data or transactions from a larger
population for the purpose of testing and evaluating the reliability of a financial statement assertion.
In other words, audit sampling involves selecting a representative sample of items from a population
in order to draw conclusions about the entire population.

Auditors use sampling techniques to obtain sufficient evidence to support their conclusions about
the financial statements. The sample is selected in a way that is random and unbiased, to ensure that
it is representative of the population being tested. The auditor then performs audit procedures on
the sample, such as testing for completeness, accuracy, and validity, and uses the results to project
conclusions about the population as a whole.

Audit sampling is a critical part of the audit process because it allows auditors to obtain sufficient
evidence to support their opinions on the fairness of the financial statements. Sampling is used when
it is not practical or necessary to examine every item in a population, due to the volume of data, time
constraints, or cost considerations. By selecting a representative sample and testing it thoroughly,
auditors can gain reasonable assurance that the population as a whole is free from material
misstatement.
 What are the procedures not involving sampling
In an audit, there are several procedures that do not involve sampling. These procedures are
generally used when the auditor can examine the entire population or when the auditor can rely on
information that is obtained from external sources. Here are some examples:

1. Inspection: The auditor inspects documents or records to verify their existence, completeness,
accuracy, and validity. This procedure does not involve sampling and can be used when the
population is small and manageable.
2. Observation: The auditor observes the activities and processes of the entity to gain an understanding
of the controls and procedures in place. This procedure does not involve sampling and can provide
valuable insights into the effectiveness of the entity's internal controls.
3. Inquiry: The auditor asks questions of management, staff, or third parties to obtain information
about the entity's operations, policies, and procedures. This procedure does not involve sampling
and can be used to obtain information that is not readily available from other sources.
4. Re-performance: The auditor performs procedures that were previously performed by the entity to
verify the accuracy and completeness of the information. This procedure does not involve sampling
and can be used to check the entity's work and ensure that it is accurate.
5. External confirmation: The auditor obtains information from external sources, such as banks,
customers, or vendors, to verify the accuracy and completeness of the information. This procedure
does not involve sampling and can provide independent and reliable evidence to support the
auditor's conclusions.

Overall, these procedures are used in conjunction with sampling techniques to obtain sufficient
evidence to support the auditor's opinions on the fairness of the financial statements.

give me an example for each of the following: inspection, inquiry, observation, analytical procedures,
re-performance and external confirmation
Sure, here are examples for each of the following procedures:

1. Inspection: The auditor inspects a sample of invoices and purchase orders to verify that they match
and that the amounts are accurate.
2. Inquiry: The auditor asks management about the entity's policies and procedures for handling cash
receipts and payments.
3. Observation: The auditor observes the inventory count process to ensure that it is conducted in
accordance with the entity's policies and procedures.
4. Analytical Procedures: The auditor performs a trend analysis of sales revenue over the past three
years to identify any significant fluctuations or anomalies.
5. Re-performance: The auditor re-performs a calculation of the depreciation expense to ensure that it
was calculated correctly by the entity.
6. External Confirmation: The auditor obtains confirmation from a bank that the entity's bank balance
as of the balance sheet date matches the amount reported in the financial statements.
 Note that these examples are not exhaustive and that the specific procedures used by the auditor
will depend on the nature of the audit and the specific risks associated with the entity being audited.

What's the procedures applied to every item in a population

When auditors perform procedures on every item in a population, this is known as a "100% audit". A
100% audit is typically only used when the population is small enough and when the cost of
performing a 100% audit is justifiable.

Some examples of procedures that may be applied to every item in a population include:

1. Tracing: The auditor traces each transaction or balance in the financial statements back to its source
documentation to ensure that it is accurately recorded and properly classified.
2. Vouching: The auditor vouches each transaction or balance in the financial statements forward from
the source documentation to ensure that it is accurately recorded and properly classified.
3. Recalculation: The auditor recalculates each financial statement amount to ensure that it is
mathematically accurate and consistent with supporting documentation.
4. Reconciliation: The auditor reconciles each account balance in the financial statements to the
corresponding account balance in the entity's general ledger or other supporting documentation.
5. Compliance testing: The auditor tests each control procedure to ensure that it is operating effectively
and in compliance with the entity's policies and procedures.

Performing these procedures on every item in a population can provide a high level of assurance
about the accuracy and completeness of the financial statements. However, this approach can be
time-consuming and costly, which is why sampling techniques are more commonly used in audit
practice.

give me an example for each of the following: Tracing, vouching, recalculation, reconciliation and
compliance testing.
Sure, here are examples for each of the following procedures:

1. Tracing: The auditor selects a sample of sales transactions and traces them to the corresponding
sales invoices to ensure that the sales were properly recorded and that the amounts and other
details match.
2. Vouching: The auditor selects a sample of purchase transactions and vouches them to the
corresponding purchase orders and vendor invoices to ensure that the purchases were properly
authorized and that the amounts and other details match.
3. Recalculation: The auditor recalculates the interest expense by multiplying the outstanding loan
balance by the interest rate to ensure that the interest expense is accurately recorded and properly
classified.
4. Reconciliation: The auditor reconciles the accounts receivable balance in the financial statements to
the corresponding accounts receivable aging schedule to ensure that the balance is accurate and
that all customer payments and adjustments have been properly recorded.
5. Compliance testing: The auditor tests the entity's internal control procedures related to the approval
of purchase orders to ensure that they are operating effectively and in compliance with the entity's
policies and procedures.

Note that these examples are not exhaustive and that the specific procedures used by the auditor
will depend on the nature of the audit and the specific risks associated with the entity being audited.

Show me the tests of controls when application of the control is not documented
When the application of a control is not documented, the auditor will need to perform alternative
procedures to gain assurance about the effectiveness of the control. These alternative procedures
can include the following tests of controls:

1. Observation: The auditor observes the control being performed by the relevant personnel to assess
its effectiveness.
2. Inquiry: The auditor inquires with management or relevant personnel to gain an understanding of
the control and how it is applied in practice.
3. Re-performance: The auditor performs the control themselves or re-performs the control to assess
its effectiveness.
4. Analytical procedures: The auditor performs analytical procedures to assess whether the control
appears to be effective based on trends or patterns observed in the financial statements or other
relevant data.
5. Inspection: The auditor inspects documents, records, or other evidence to determine whether the
control appears to have been applied consistently.
6. Walkthrough: The auditor performs a walkthrough of the relevant process or transaction flow to gain
a better understanding of how the control is intended to operate and to identify potential
weaknesses in the control.

Note that these tests of controls may be less effective than testing documented controls, as they rely
on observations, inquiries, and other indirect evidence to assess the effectiveness of the control. In
addition, the auditor may need to rely on other substantive procedures to gain assurance about the
financial statement balances and transactions in the absence of effective controls.

give me an example for each of the above test of controls

Sure, here are examples for each of the test of controls:

1. Observation: The auditor observes employees in the billing department as they enter data into the
system to ensure that they are verifying customer information before entering the data.
2. Inquiry: The auditor inquires with management or relevant personnel in the purchasing department
to understand how they ensure that purchase orders are properly authorized before processing.
3. Re-performance: The auditor performs a control activity themselves to ensure that it is working
effectively, such as manually comparing a sample of customer orders to the shipping documents to
verify that the orders were shipped as per the instructions.
4. Analytical procedures: The auditor compares the current year's financial information to prior years'
information, industry benchmarks, or other relevant data to identify unusual trends or fluctuations,
which may indicate potential control weaknesses.
5. Inspection: The auditor inspects a sample of invoices, shipping documents, or other relevant
evidence to ensure that they have been properly authorized and that appropriate approvals and
documentation are present.
6. Walkthrough: The auditor follows the process of a specific transaction, such as a sales order, from
initiation to completion to gain an understanding of the control activities at each stage and to
identify potential control weaknesses.

Note that the specific tests of controls used by the auditor will depend on the nature of the audit,
the specific control being tested, and the auditor's professional judgment.

Show me the procedures that do not evaluate characteristics

There are several audit procedures that do not evaluate specific characteristics of transactions,
events, or balances. These procedures include:

1. Risk assessment procedures: These procedures are used to identify and assess the risks of material
misstatement in the financial statements. They do not involve specific testing of transactions or
balances, but rather focus on understanding the entity's operations, industry, and internal control
environment.
2. Tests of controls: These procedures are used to evaluate the effectiveness of internal controls over
financial reporting. While they do involve testing specific controls, they are not designed to evaluate
the specific characteristics of transactions, events, or balances.
3. Substantive procedures: These procedures are designed to obtain assurance about the
completeness, accuracy, and validity of the financial statement balances and transactions. While they
may involve testing specific characteristics, they are not focused solely on evaluating those
characteristics.
4. Inquiry: This is a procedure in which the auditor obtains information from management or other
individuals within the entity. While it may involve asking questions about specific transactions or
balances, it is not designed to evaluate specific characteristics in the same way that other procedures
are.
5. Observation: This is a procedure in which the auditor observes the performance of certain activities
or processes within the entity. While it may involve observing the characteristics of certain
transactions, it is not designed to evaluate those characteristics in the same way that other
procedures are.

Note that while these procedures may not specifically evaluate the characteristics of transactions,
events, or balances, they are all important components of an effective audit and are used to obtain
assurance about the financial statements as a whole.

give me an example for each of above procedures

Sure, here are examples for each of the procedures:
1. Risk assessment procedures: The auditor performs a walkthrough of the client's accounting system to
gain an understanding of the client's internal control environment, the relevant financial reporting
risks, and the control procedures in place to mitigate those risks.
2. Tests of controls: The auditor tests the effectiveness of the client's segregation of duties control,
which requires that no one employee has control over all aspects of a financial transaction, by
reviewing the client's documented segregation of duties policy and observing how employees
adhere to it.
3. Substantive procedures: The auditor performs a substantive procedure by selecting a sample of sales
transactions and verifying that the sales invoices agree with the shipping documents and that the
transactions have been properly recorded in the accounting system.
4. Inquiry: The auditor inquires with management about the client's use of estimates in the preparation
of the financial statements, including how those estimates are developed and the assumptions that
underlie them.
5. Observation: The auditor observes the client's physical inventory count to confirm the existence and
condition of the inventory items and to determine whether there are any issues with inventory
valuation.

Note that these are just examples, and the specific procedures used by the auditor will depend on
the nature of the audit, the specific risks and controls being evaluated, and the auditor's professional
judgment.

What are the untested balances

Untested balances are those account balances that have not been subjected to audit testing or have
not been tested sufficiently to provide a reasonable level of assurance. There are a variety of reasons
why an account balance may be left untested, including time constraints, lack of materiality, or a
judgment that the balance is not at risk of material misstatement.

However, it is important to note that untested balances do not mean that the account balance is
incorrect or materially misstated. Instead, it simply means that the auditor has not obtained sufficient
evidence to provide a reasonable level of assurance that the balance is materially correct.

It is the auditor's responsibility to ensure that all material account balances are appropriately tested
and supported by sufficient and appropriate audit evidence. Therefore, untested balances should be
documented and reviewed by the audit team to ensure that the decision not to test the balance was
reasonable and justified based on professional judgement and audit risk assessments.

give me some examples of untested balances

Examples of untested balances may include:

1. Small account balances: The auditor may determine that certain small account balances, such as
prepaid expenses or accrued liabilities, are not material to the financial statements and therefore,
may not be tested.
2. Low-risk account balances: The auditor may determine that certain account balances, such as cash or
short-term investments, have low inherent risk and effective controls, and therefore, may not require
significant testing.
3. Complex account balances: The auditor may determine that certain account balances, such as
goodwill or intangible assets, are complex and require extensive testing, but due to time constraints
or lack of available resources, they may not be fully tested.
4. Unusual transactions: The auditor may identify unusual or infrequent transactions in an account
balance, such as a one-time significant investment or a significant loss, but may not be able to
perform sufficient testing due to lack of available information or time constraints.
5. Accounts with low activity: The auditor may determine that certain accounts, such as fixed assets or
inventory, have low activity during the year and therefore, may not require significant testing.

It is important to note that untested balances should be reviewed and documented by the auditor to
ensure that the decision not to test the balance was appropriate and justified based on professional
judgment and audit risk assessments.

What is the sampling audit procedure

Sampling is a commonly used audit procedure that involves selecting a representative sample of
transactions or balances from a larger population of transactions or balances. The objective of
sampling is to obtain sufficient and appropriate audit evidence to evaluate the overall accuracy and
completeness of the population being tested.

The sampling audit procedure typically involves the following steps:

1. Define the population: The auditor first identifies the population of transactions or balances that will
be subject to sampling.
2. Determine the sample size: The auditor then determines the appropriate sample size based on the
population size, risk of material misstatement, and other relevant factors.
3. Select the sample: The auditor then selects a representative sample of transactions or balances from
the population using a random or systematic sampling method.
4. Test the sample: The auditor then performs audit procedures on the selected sample, such as
inspection, observation, reperformance, or analytical procedures, to obtain sufficient and appropriate
audit evidence.
5. Evaluate the results: The auditor then evaluates the results of the sample testing to draw conclusions
about the overall accuracy and completeness of the population being tested.
6. Document the sampling process: The auditor documents the sampling process, including the
population definition, sample size determination, sample selection method, sample testing
procedures, and the evaluation of the sample results.

It is important to note that sampling is not appropriate for all audit procedures, and the use of
sampling must be justified based on the audit objectives, population characteristics, and the overall
audit risk assessment. The auditor must also exercise professional judgment and adhere to relevant
auditing standards when performing sampling procedures.
 what is the non sampling audit procedure
Non-sampling audit procedures are audit procedures that do not involve selecting and testing a
sample of transactions or balances. These procedures involve direct examination of all or a significant
portion of the items within a population. Non-sampling audit procedures include the following:

1. Inspection: Inspection involves examining records, documents, or tangible assets. For example,
inspecting title deeds, bank statements, or physical inventory count sheets.
2. Observation: Observation involves watching a process or procedure being performed. For example,
observing the physical inventory count process, observing a cash-handling procedure, or observing
the preparation of financial statements.
3. Inquiry: Inquiry involves seeking information from management, staff, or third parties. For example,
inquiring with management about changes in accounting policies or inquiring with suppliers about
the completeness of accounts payable.
4. Reperformance: Reperformance involves performing audit procedures that were originally performed
by the entity being audited. For example, reperforming calculations of depreciation or testing the
accuracy of data entered into accounting software.
5. Analytical procedures: Analytical procedures involve evaluating financial information through analysis
of relationships and trends. For example, comparing current year financial information to prior years
or industry benchmarks.
6. External confirmation: External confirmation involves obtaining information from a third party to
corroborate information provided by the entity being audited. For example, confirming accounts
receivable balances with customers or bank balances with financial institutions.

Non-sampling audit procedures are typically used in conjunction with sampling procedures to obtain
a sufficient and appropriate level of audit evidence. It is important to note that the use of non-
sampling audit procedures requires the auditor to exercise professional judgment and adhere to
relevant auditing standards.

Give me an example for each of the above sampling and non sampling procedures
Sure! Here are some examples of sampling and non-sampling audit procedures:

Sampling Procedures:

1. Simple Random Sampling: Selecting a sample of invoices from a population of sales transactions
using a random number generator.
2. Stratified Sampling: Dividing a population of customer accounts into groups based on the amount
owed, and selecting a proportional sample from each group.
3. Haphazard Sampling: Selecting a sample of employee expense reports by randomly picking invoices
from a file without any pattern or predetermined criteria.

Non-Sampling Procedures:
1. Inspection: Examining title deeds and other legal documents to verify ownership of assets.
2. Observation: Watching the physical inventory count process to ensure that all items are counted and
recorded accurately.
3. Inquiry: Asking management about the nature and extent of related party transactions, and
obtaining explanations for any unusual transactions.
4. Reperformance: Calculating depreciation expense independently to verify the accuracy of the entity's
calculation.
5. Analytical Procedures: Comparing the current year's sales figures to prior year sales figures or to
industry averages to identify any significant changes.
6. External Confirmation: Confirming accounts receivable balances with customers, or bank balances
with financial institutions, to verify the accuracy of the information provided by the entity being
audited.

Show me all sampling methods and give me a detail example and process
There are several sampling methods that auditors can use, including the following:

1. Simple Random Sampling: This method involves selecting a random sample from the population.
Each item in the population has an equal chance of being selected.

Example: An auditor wants to test the accuracy of a company's payroll. They randomly select 50
employee pay stubs from the population of all employee pay stubs for the year.

Process:

 Determine the population size (total number of pay stubs).

 Decide on the sample size (number of pay stubs to select).
 Use a random number generator to select the pay stubs that will be included in the sample.
 Perform audit procedures on the selected pay stubs.
 Draw conclusions based on the results of the audit procedures performed on the sample.
2. Stratified Sampling: This method involves dividing the population into subgroups, or strata, based on
specific criteria, and then selecting a sample from each stratum.

Example: An auditor wants to test the accuracy of accounts payable. They divide the population of
accounts payable into two strata: accounts with balances over $10,000 and accounts with balances
under $10,000. They randomly select 20 accounts from each stratum.

Process:

 Determine the criteria for dividing the population into strata.

 Determine the sample size for each stratum.
 Randomly select the accounts to be included in each stratum's sample.
 Perform audit procedures on the selected accounts.
 Draw conclusions based on the results of the audit procedures performed on the samples.
3. Systematic Sampling: This method involves selecting items from the population at regular intervals.
The interval is determined by dividing the population size by the sample size.

Example: An auditor wants to test the accuracy of the inventory count. They determine that the
population of items is 500 and they want a sample size of 50. They select every 10th item from the
population to be included in the sample.

Process:

 Determine the population size.

 Determine the sample size.
 Calculate the sampling interval (population size divided by sample size).
 Select a random starting point within the population.
 Include every nth item in the sample (where n is the sampling interval).
 Perform audit procedures on the selected items.
 Draw conclusions based on the results of the audit procedures performed on the sample.
4. Cluster Sampling: This method involves dividing the population into clusters, or groups, and
randomly selecting entire clusters to be included in the sample.

Example: An auditor wants to test the accuracy of sales records. They divide the population of sales
transactions into geographic regions and randomly select three regions to include in the sample.
They then test all of the sales transactions within each selected region.

Process:

 Determine the criteria for dividing the population into clusters.

 Determine the number of clusters to include in the sample.
 Randomly select the clusters to be included in the sample.
 Test all items within each selected cluster.
 Perform audit procedures on the selected items.
 Draw conclusions based on the results of the audit procedures performed on the sample.

It is important for auditors to select the appropriate sampling method based on the characteristics of
the population being tested and the audit objective. Additionally, auditors must document their
sampling methodology and the results of their testing to support their conclusions.

give me a real example showing the whole calculating process with data for the above 4 methods
Sure, here's an example for each of the four sampling methods with data and the whole calculation
process.

1. Simple Random Sampling Example:

 Suppose an auditor wants to test the accuracy of a company's accounts receivable balance of
$500,000. The auditor decides to select a sample of 50 customer invoices using simple random
sampling. Here's the process:

 Determine the population size (total number of customer invoices). Suppose the population size is
10,000.
 Decide on the sample size (number of customer invoices to select). The auditor decides to select 50
invoices.
 Use a random number generator to select the customer invoices that will be included in the sample.
Suppose the random numbers generated are: 117, 3, 8, 94, 777, 100, 452, 256, 569, 923, and so on.
 Perform audit procedures on the selected customer invoices, such as checking for accuracy,
completeness, and validity.
 Draw conclusions based on the results of the audit procedures performed on the sample. Suppose
the auditor finds that two customer invoices have errors, so they estimate that there may be a 4%
error rate in the accounts receivable balance.
2. Stratified Sampling Example:

Suppose an auditor wants to test the accuracy of a company's sales revenue for the year. The auditor
divides the population of sales transactions into two strata: sales transactions with revenue over
$10,000 and sales transactions with revenue under $10,000. The auditor randomly selects 20 sales
transactions from each stratum. Here's the process:

 Determine the criteria for dividing the population into strata. Suppose the criteria is based on
revenue amount.
 Determine the sample size for each stratum. Suppose the sample size is 20 sales transactions for
each stratum.
 Randomly select the sales transactions to be included in each stratum's sample. Suppose the
following sales transactions are selected:
 Over $10,000 stratum: 1001, 2754, 3999, 5432, 6789, and so on.
 Under $10,000 stratum: 118, 357, 469, 632, 817, and so on.
 Perform audit procedures on the selected sales transactions, such as checking for accuracy,
completeness, and validity.
 Draw conclusions based on the results of the audit procedures performed on the samples. Suppose
the auditor finds that there is a 3% error rate in the sales transactions with revenue over $10,000 and
a 6% error rate in the sales transactions with revenue under $10,000.
3. Systematic Sampling Example:

Suppose an auditor wants to test the accuracy of a company's inventory count. The auditor
determines that the population of items is 500 and they want a sample size of 50. They select every
10th item from the population to be included in the sample. Here's the process:

 Determine the population size. Suppose the population size is 500.

 Determine the sample size. Suppose the sample size is 50.
 Calculate the sampling interval (population size divided by sample size). The sampling interval is 10
(500 divided by 50).
 Select a random starting point within the population. Suppose the starting point is item number 9.
 Include every nth item in the sample (where n is the sampling interval). The auditor selects items 9,
19, 29, 39, and so on, until 50 items have been selected.
 Perform audit procedures on the selected items, such as checking for accuracy, completeness, and
validity.
 Draw conclusions based on the results of the audit procedures performed on the sample. Suppose
the auditor finds that there are no errors in the

continue
Next, we can calculate the upper and lower limits of the estimated error using the following
formulas:

Upper Limit = Sampling Interval + Tolerable Error Lower Limit = Sampling Interval - Tolerable Error

For this example, let's assume that the tolerable error is $100,000 and the confidence level is 95%.
Using the t-table, we can find the t-value for a sample size of 50 and a 95% confidence level to be
2.009.

Sampling Interval = (Total Population Value / Sample Size) * Reliability Factor = ($5,000,000 / 50) *
2.009 = $500,450

Upper Limit = Sampling Interval + Tolerable Error = $500,450 + $100,000 = $600,450

Lower Limit = Sampling Interval - Tolerable Error = $500,450 - $100,000 = $400,450

Based on our sample, we found an error of $450,000. Since this falls within the upper and lower
limits, we can conclude that the estimated error in the population is not significant and we can
accept the financial statements as fairly stated.

Note: The above example is for illustrative purposes only and does not reflect the actual sampling
methods used in professional audit practice. Actual sampling methods may vary depending on the
specific audit situation and requirements. It is important to consult with a qualified auditor or
accounting professional for guidance on appropriate sampling methods for a particular audit
engagement.

Cluster Sampling example

Let's say that an auditor is conducting an inventory count for a company with a large warehouse
containing thousands of items. Instead of counting every single item, the auditor decides to use
cluster sampling to select a representative sample.
 The auditor first divides the warehouse into clusters based on similar characteristics, such as product
type or location. The auditor then randomly selects a few clusters to include in the sample. For
example, the auditor might randomly select 5 clusters out of a total of 50 clusters in the warehouse.

Next, the auditor goes to each selected cluster and counts all of the items within that cluster. For
example, if a selected cluster contains 100 items, the auditor would count all 100 items. This is known
as the sampling unit.

Once the auditor has completed the counts for all selected clusters, they calculate the average count
per sampling unit for the entire population. This is known as the estimated population value.

Let's assume that the auditor counted a total of 500 items across the 5 selected clusters, resulting in
an average of 100 items per cluster. If there are a total of 50 clusters in the warehouse, the estimated
population value would be 50 x 100 = 5,000 items.

The auditor can then use statistical formulas to calculate the sampling error and determine the
confidence level of the estimate. Based on the results, the auditor can draw conclusions about the
accuracy of the inventory count and whether any adjustments are necessary.

Note that the above example is simplified for illustrative purposes only and actual cluster sampling
methods may vary depending on the specific audit situation and requirements. It is important to
consult with a qualified auditor or accounting professional for guidance on appropriate sampling
methods for a particular audit engagement.

What are the main differences between sampling and non sampling procedures
The main differences between sampling and non-sampling procedures in audit can be summarized
as follows:

1. Approach: Sampling procedures involve selecting a representative sample from a population and
testing the sample to draw conclusions about the entire population. Non-sampling procedures
involve testing the entire population or examining individual items within the population.
2. Time and Cost: Sampling procedures are generally less time-consuming and less expensive
compared to non-sampling procedures. This is because sampling procedures only require testing a
portion of the population, while non-sampling procedures require testing the entire population.
3. Reliability: Sampling procedures are subject to sampling risk, which is the risk that the conclusions
drawn from the sample may not be representative of the entire population. Non-sampling
procedures, on the other hand, are generally considered to be more reliable as they involve testing
the entire population or individual items within the population.
4. Applicability: Sampling procedures are typically used in situations where testing the entire
population is not feasible, such as in large populations or where testing the entire population is
prohibitively expensive. Non-sampling procedures are used in situations where testing the entire
population is feasible and necessary, such as in smaller populations or where the risk of material
misstatement is high.
5. Audit Standards: Auditing standards require the use of both sampling and non-sampling procedures
in an audit engagement. The specific procedures used will depend on the nature and size of the
population being tested, as well as the auditor's professional judgment and experience.

It is important to note that both sampling and non-sampling procedures have their advantages and
disadvantages, and auditors must carefully consider the specific circumstances of each audit
engagement when selecting the appropriate procedures to use.

define the following terminology: reliability, confidence level, alpha risk, beta risk, precision
Here are the definitions of the following terms:

1. Reliability: The degree to which the results of an audit procedure are free from error and bias.
Reliability is important to ensure that the conclusions drawn from the audit evidence are accurate
and can be relied upon.
2. Confidence Level: The degree of certainty that can be attributed to the results of a statistical analysis,
such as a sampling procedure. The confidence level is typically expressed as a percentage, such as
95% or 99%, and reflects the level of confidence that the results of the analysis are accurate and
reliable.
3. Alpha Risk: Also known as Type I error, alpha risk is the risk that the auditor will conclude that a
control is effective or a balance is materially correct when it is not. Alpha risk is typically set at 5%,
which means that the auditor is willing to accept a 5% chance of making a Type I error.
4. Beta Risk: Also known as Type II error, beta risk is the risk that the auditor will conclude that a control
is ineffective or a balance is materially misstated when it is not. Beta risk is typically set at 10%, which
means that the auditor is willing to accept a 10% chance of making a Type II error.
5. Precision: The degree of closeness or exactness of the results obtained from a statistical analysis,
such as a sampling procedure. Precision is important to ensure that the results of the analysis are
reliable and accurate, and is typically measured using a confidence interval. A narrower confidence
interval indicates a higher degree of precision, while a wider confidence interval indicates a lower
degree of precision.

Give an example for each of the above

Here are examples of each of the above terms:

1. Reliability: During an inventory observation, the auditor selects a sample of items to physically count
and compares the count to the recorded quantity in the inventory records. To ensure the reliability of
the count, the auditor may use trained personnel to conduct the count and verify the count with
multiple counts.
2. Confidence Level: In a sampling procedure, the auditor selects a sample of transactions and tests
them for compliance with a control procedure. If the auditor selects a 95% confidence level, they can
be 95% confident that the results of the testing are accurate and representative of the entire
population.
3. Alpha Risk: An auditor is testing the effectiveness of a control procedure related to the approval of
purchase orders. If the auditor concludes that the control is effective when it is actually not, they
have made a Type I error, or an alpha risk.
4. Beta Risk: An auditor is testing the effectiveness of a control procedure related to the approval of
purchase orders. If the auditor concludes that the control is not effective when it is actually effective,
they have made a Type II error, or a beta risk.
5. Precision: An auditor is testing a population of 10,000 transactions for compliance with a control
procedure. They select a sample of 200 transactions and find that 40 of them do not comply with the
control. Based on this sample, the auditor calculates a precision of plus or minus 5%, which means
that they can be 95% confident that the percentage of noncompliant transactions in the entire
population is between 17.5% and 22.5%.

What's the purpose and nature of audit sampling

The purpose of audit sampling is to allow auditors to draw conclusions about an entire population of
transactions or accounts based on a representative sample. This allows the auditor to gather
evidence about a large number of transactions or accounts more efficiently and effectively than they
would be able to do by examining every individual item.

The nature of audit sampling involves selecting a sample from the population that is representative
of the entire population. The sample should be selected using a random method to ensure that each
item in the population has an equal chance of being selected. Once the sample is selected, the
auditor will perform testing on the sample items, typically using one or more audit procedures such
as inspection, observation, or re-performance. The results of the testing on the sample are then
extrapolated to the entire population to draw conclusions about the population as a whole.

Audit sampling is an important tool for auditors to use in order to provide a reasonable level of
assurance that the financial statements are free from material misstatement. However, it is important
to note that sampling is not a substitute for a complete examination of all items in a population. The
auditor must carefully consider the risk associated with the population being sampled and the
sampling method being used to ensure that the sample size and selection method are appropriate to
achieve the desired level of assurance.

What's the main differences between audit sampling and other scientific or engineering sampling
The main differences between audit sampling and other scientific or engineering sampling methods
are related to the purpose and nature of the sampling.

Audit sampling is used in the context of auditing financial statements, which are prepared by
management and subject to various accounting and disclosure requirements. The purpose of audit
sampling is to gather evidence to support the auditor's opinion on whether the financial statements
are free from material misstatement. This opinion is used by stakeholders to make decisions about
the company, such as whether to invest in the company or extend credit to the company.
 In contrast, other scientific or engineering sampling methods are typically used to gather data for
research or quality control purposes. For example, a pharmaceutical company may use sampling to
ensure that a batch of medication meets certain quality standards. The purpose of this sampling is to
ensure that the medication is safe and effective for patients, rather than to provide an opinion on the
financial statements of the company.

Another key difference between audit sampling and other sampling methods is the nature of the
population being sampled. In auditing, the population being sampled is typically a group of financial
transactions or accounts. In scientific or engineering sampling, the population being sampled may be
physical objects or materials, such as a batch of medication or a sample of soil.

Finally, the level of risk associated with the sampling method may be different in auditing compared
to other sampling methods. In auditing, there is a risk that the sample may not be representative of
the entire population or that the auditor may misinterpret the results of the testing. As a result,
auditors must carefully consider the sampling method and sample size to mitigate these risks. In
contrast, other scientific or engineering sampling methods may have different types of risks, such as
the risk of contamination in a sample or the risk of measurement error.

List out the types of audit tests

There are generally three types of audit tests:

1. Risk assessment procedures: These procedures are performed at the beginning of the audit to gain
an understanding of the entity and its environment, including its internal control system. Examples of
risk assessment procedures include inquiry, observation, and inspection of documents.
2. Substantive procedures: These procedures are performed to obtain evidence about the amounts and
disclosures in the financial statements. Substantive procedures can be further divided into two
categories:
 Tests of details: These procedures involve testing individual transactions, account balances, and
disclosures to obtain evidence about their accuracy and completeness. Examples of tests of details
include analytical procedures, reperformance, and external confirmation.
 Tests of controls: These procedures involve testing the operating effectiveness of controls to assess
whether they are designed and operating effectively to prevent or detect material misstatements.
Examples of tests of controls include inquiry, observation, inspection of documents, and
reperformance.
3. Final analytical procedures: These procedures are performed at the end of the audit to review the
financial statements for consistency and reasonableness. Examples of final analytical procedures
include comparing financial ratios to industry benchmarks and reviewing the overall financial results
for any unusual fluctuations or trends.

It's important to note that the specific audit tests used can vary depending on the nature of the
entity being audited, the audit risk, and other factors.

give me example of the above procedures

 Sure, here are some examples of the different types of audit tests:

1. Risk assessment procedures:

 Inquiry: Asking management about their understanding of the entity's internal control system.
 Observation: Observing the entity's physical operations to identify areas of potential risk.
 Inspection of documents: Reviewing financial statements and other relevant documents to identify
areas of potential risk.
2. Substantive procedures:
 Tests of details:
 Analytical procedures: Comparing current year financial data to prior year data and industry
benchmarks to identify any unusual fluctuations or trends.
 Reperformance: Testing a sample of transactions to verify that they were processed accurately and in
compliance with established policies and procedures.
 External confirmation: Sending a request to an external party (such as a bank or a customer) to
confirm the accuracy of account balances or transactions.
 Tests of controls:
 Inquiry: Asking management about their understanding of and adherence to established policies and
procedures.
 Observation: Observing the entity's internal control system in action to identify any weaknesses or
areas for improvement.
 Inspection of documents: Reviewing policies and procedures manuals and other relevant documents
to assess the adequacy of the internal control system.
3. Final analytical procedures:
 Comparing financial ratios to industry benchmarks to assess the entity's financial performance and
identify any unusual fluctuations or trends.
 Reviewing the overall financial results for any unusual fluctuations or trends that may require further
investigation.

Detail example of tests of controls, substantive tests ,and dual - purpose tests
Sure, here are some examples of tests of controls, substantive tests, and dual-purpose tests:

1. Tests of controls: A test of control is a procedure performed by the auditor to evaluate the operating
effectiveness of an internal control system. Examples of tests of controls include:
 Inquiry: Asking management about their understanding of and adherence to established policies and
procedures. For example, the auditor may inquire about the entity's inventory management policies
and procedures to assess whether the entity has adequate controls in place to ensure the accuracy of
inventory records.
 Observation: Observing the entity's internal control system in action to identify any weaknesses or
areas for improvement. For example, the auditor may observe the entity's cash handling procedures
to assess whether controls are in place to prevent misappropriation of funds.
 Inspection of documents: Reviewing policies and procedures manuals and other relevant documents
to assess the adequacy of the internal control system. For example, the auditor may review the
entity's employee handbook to assess whether the entity has adequate controls in place to prevent
fraud or embezzlement.
2. Substantive tests: Substantive tests are procedures performed by the auditor to detect material
misstatements in the financial statements. Examples of substantive tests include:
 Tests of details:
 Analytical procedures: Comparing current year financial data to prior year data and industry
benchmarks to identify any unusual fluctuations or trends. For example, the auditor may compare
the current year's accounts receivable balance to the prior year's balance to assess whether there are
any significant changes in the entity's collection policies or credit risk.
 Reperformance: Testing a sample of transactions to verify that they were processed accurately and in
compliance with established policies and procedures. For example, the auditor may select a sample
of sales transactions and reperform the calculations to verify the accuracy of the sales invoices.
 External confirmation: Sending a request to an external party (such as a bank or a customer) to
confirm the accuracy of account balances or transactions. For example, the auditor may send a
confirmation request to the entity's bank to verify the accuracy of the bank balance reported in the
financial statements.
3. Dual-purpose tests: Dual-purpose tests are procedures that are designed to achieve both a test of
control and a substantive test objective. Examples of dual-purpose tests include:
 Observation and inquiry of an entity's cash handling procedures to assess the effectiveness of
controls over cash receipts and to gather evidence about the completeness and accuracy of recorded
cash receipts.
 Analyzing the entity's expense accounts to identify unusual or potentially fraudulent transactions,
which can serve both a substantive test and a test of controls objective.
 Reviewing the entity's fixed asset register to verify the existence and ownership of assets, as well as
to assess the effectiveness of controls over fixed assets.

what are the sampling risk and non sampling risk

Sampling risk and non-sampling risk are two types of risks associated with the use of audit sampling
in the audit process.

Sampling risk is the risk that the auditor's conclusion based on a sample may be different from the
conclusion that would be reached if the entire population were examined. Sampling risk can be
reduced by increasing the sample size or by using a more appropriate sampling method.

Non-sampling risk, on the other hand, is the risk that the auditor reaches an incorrect conclusion
because of factors unrelated to the sampling process. Non-sampling risk can arise from factors such
as the auditor's failure to recognize exceptions in the sample or failure to investigate exceptions
appropriately.

Examples of non-sampling risks include inherent limitations of internal control, fraud, and
misstatement due to errors or omissions in financial records or documentation. Non-sampling risks
can be reduced through appropriate planning and execution of the audit, including proper risk
assessment, internal control evaluation, and substantive testing.

give me example of the above

An example of sampling risk is when an auditor selects a sample of 50 accounts receivable
transactions from a population of 10,000 transactions and concludes that the accounts receivable
balance is fairly stated. However, it turns out that there is a material misstatement in one of the
transactions that was not included in the sample.

An example of non-sampling risk is when an auditor fails to recognize the signs of fraud or
manipulation in financial statements, leading to an incorrect conclusion about the overall fairness of
the financial statements. Another example is when an auditor does not obtain sufficient evidence to
support an assertion, such as failing to perform enough substantive testing to identify a
misstatement.

Dual-purpose testing is a combination of tests of controls and substantive tests, and an example of
dual-purpose testing is when an auditor performs a test to determine whether a control is operating
effectively, while also using the same test to obtain evidence about the completeness or accuracy of
a financial statement assertion.

Tests of controls involve testing the operating effectiveness of internal controls, such as reviewing
the segregation of duties in a department to ensure that no one person has too much control over a
process.

Substantive tests involve testing the underlying transactions and balances in a financial statement,
such as selecting a sample of sales transactions and tracing them to supporting documentation to
confirm their existence and accuracy.

what are the non statistical and statistical sampling

Non-statistical sampling is an approach to audit sampling that does not involve the use of statistical
methods to determine sample size and select items from a population. Instead, the auditor uses
professional judgment to select a sample that is representative of the population, based on factors
such as the auditor's knowledge of the client's business, the assessed risk of material misstatement,
and the availability of documentation.

Statistical sampling, on the other hand, is an approach to audit sampling that uses statistical
methods to determine sample size and select items from a population. This approach requires the
auditor to specify the desired level of assurance (i.e., the risk of incorrect acceptance) and the
expected deviation rate, and then use statistical formulas to calculate the sample size and select the
sample items.

Statistical sampling is generally considered to be more precise and objective than non-statistical
sampling, but it also requires more specialized training and expertise to use effectively. Non-
statistical sampling may be appropriate in situations where the population is small, or where the
auditor has a high level of knowledge about the client's business and processes.

example of the above

 Here is an example that illustrates the difference between statistical and non-statistical sampling:

Suppose an auditor is testing the accuracy of sales invoices in a large retail business. The auditor
wants to determine if there are any instances of overstatement or understatement of sales revenue.
The auditor could use either statistical or non-statistical sampling to accomplish this objective.

Example of non-statistical sampling:

The auditor could choose to select a sample of sales invoices based on his or her professional
judgment. For example, the auditor might select every 10th invoice from a particular day's sales or
select invoices from different departments or locations. The auditor would then examine these
invoices for accuracy.

Example of statistical sampling:

The auditor could use statistical sampling to select a sample of sales invoices based on specific
criteria. For example, the auditor might set a desired level of assurance of 95%, an expected
deviation rate of 5%, and a population size of 10,000 invoices. Based on these factors, the auditor
would use a statistical formula to determine the sample size and select the sample items.

In this example, non-statistical sampling relies on the auditor's judgment to select a representative
sample, whereas statistical sampling relies on mathematical formulas to determine the sample size
and select the sample items.

What is the detail procedure of planning the audit sampling

The planning of audit sampling involves the following steps:

1. Define the audit objective: The auditor must first define the specific objective of the audit test that
will be performed.
2. Define the population: The auditor must identify the population that will be tested. The population
should be defined in terms of the characteristics that are relevant to the audit objective.
3. Define the sampling unit: The sampling unit is the individual items that will be selected for testing
from the population. The sampling unit must be defined in a way that ensures that all relevant items
in the population have an equal chance of being selected.
4. Determine the sample size: The auditor must determine the appropriate sample size based on the
level of confidence and acceptable level of risk. The sample size should be large enough to achieve
the desired level of assurance, but small enough to be cost-effective.
5. Select the sample: The auditor must select the sample items from the population using a random or
systematic sampling method.
6. Perform the audit test: The auditor must perform the audit test on the selected sample items using
the appropriate audit procedure.
7. Evaluate the results: The auditor must evaluate the results of the audit test to determine whether
there are any material misstatements or other issues that require further investigation.
8. Document the results: The auditor must document the results of the audit test in the working papers,
including the procedures performed, the results obtained, and the conclusions reached.
9. Communicate the results: The auditor must communicate the results of the audit test to the
appropriate parties, such as management or the audit committee.

Overall, the planning of audit sampling involves careful consideration of the specific audit objective,
the population and sampling unit, the appropriate sample size, and the selection and performance of
the audit test. It is a critical component of the audit process and helps to ensure that the audit
provides the desired level of assurance.

give me a real example with data and calculation

Sure, here's an example:

Suppose you are auditing the accounts receivable balance of a company with a population of 5,000
customer invoices. You have decided to use systematic sampling with a sample size of 100. You have
also determined that the tolerable misstatement is $10,000, and you want to control the risk of
incorrect acceptance at 5% and the risk of incorrect rejection at 10%.

1. Define the population: The population is the entire accounts receivable balance of the company,
which consists of 5,000 customer invoices.
2. Define the sampling unit: The sampling unit is each customer invoice in the accounts receivable
balance.
3. Determine the sample size: The sample size is 100 customer invoices.
4. Determine the sampling method: The sampling method is systematic sampling, where every 50th
invoice is selected for testing.
5. Determine the tolerable misstatement: The tolerable misstatement is $10,000.
6. Determine the acceptable level of risk: The acceptable level of risk of incorrect acceptance is 5%, and
the acceptable level of risk of incorrect rejection is 10%.
7. Conduct the sampling:
 Identify the first invoice to be tested, which is randomly selected between 1 and 50.
 Select every 50th invoice thereafter until you have a sample of 100 invoices.
 Test each invoice in the sample for accuracy and completeness, and record any misstatements.
 Calculate the projected misstatement based on the sample results and the sampling method used.
 Compare the projected misstatement to the tolerable misstatement to determine whether the
accounts receivable balance is materially misstated.

For example, let's say the sample results show misstatements totaling $5,000. The projected
misstatement can be calculated as follows:

Projected misstatement = (Total audited invoices / Sample size) x Misstatement in sample Projected
misstatement = (5,000 / 100) x $5,000 Projected misstatement = $250,000
 Since the projected misstatement is below the tolerable misstatement of $10,000, the auditor can
conclude that the accounts receivable balance is not materially misstated. However, the auditor must
also consider the risks of incorrect acceptance and rejection to ensure that the conclusion is reliable.

list out the types of statistical sampling plans

There are several types of statistical sampling plans, including:

1. Simple random sampling

2. Systematic sampling
3. Stratified sampling
4. Cluster sampling
5. Probability proportional to size (PPS) sampling
6. Multistage sampling
7. Stop or go sampling
8. Discovery sampling

Each of these plans has its own unique characteristics and can be used in different situations
depending on the nature of the population being sampled and the objectives of the audit.

What's attributes sampling and variable sampling and give me exampls

Attributes sampling and variable sampling are two common types of statistical sampling used in
auditing.

Attributes sampling is used to estimate the proportion of items in a population that possess a certain
attribute, such as compliance with a specific control. It involves selecting a sample of items from the
population and determining whether or not they possess the attribute of interest. The results of the
sample are then used to make inferences about the entire population.

For example, an auditor may want to test the effectiveness of a control procedure that requires
employees to obtain approval from a supervisor before making a purchase. The auditor could select
a sample of purchase orders from the population and determine whether or not they contain the
required approval. Based on the results of the sample, the auditor could estimate the proportion of
all purchase orders that contain the required approval.

Variable sampling is used to estimate the value of a specific characteristic or attribute in a

population, such as the accuracy of financial statement balances. It involves selecting a sample of
items from the population and measuring the characteristic of interest. The results of the sample are
then used to make inferences about the entire population.

For example, an auditor may want to test the accuracy of a specific account balance in the financial
statements. The auditor could select a sample of transactions that make up the account balance and
 determine the accuracy of each transaction. Based on the results of the sample, the auditor could
estimate the accuracy of the entire account balance.

In summary, attributes sampling is used to estimate the proportion of items in a population that
possess a certain attribute, while variable sampling is used to estimate the value of a specific
characteristic or attribute in a population.

What are the general implementation considerations for the above plans
Here are some general implementation considerations for statistical sampling plans:

1. Properly identify the population: Ensure that the population is accurately defined and that all items in
the population are included in the sampling frame.
2. Select a sampling method: Choose a suitable statistical sampling method that best fits the objectives
and the characteristics of the population.
3. Determine sample size: Determine an appropriate sample size that will provide a reasonable level of
assurance while being cost-effective.
4. Define the sampling unit: Determine what constitutes a single item or observation for sampling
purposes, and ensure that each unit in the sample is independent of each other.
5. Randomly select the sample: Use a random sampling method to select the sample to avoid any bias
or subjective selection.
6. Document the sampling process: Document the sampling process, including the method used, the
sample size, the sampling unit, the sampling frame, and any deviations from the original plan.
7. Perform the sampling procedures: Perform the sampling procedures as per the defined sampling
plan.
8. Evaluate the sample results: Evaluate the sample results and extrapolate them to the entire
population based on the sampling plan.
9. Communicate the results: Communicate the results to the relevant parties and consider the
implications of the results for the overall audit opinion.
10. Consider any limitations: Consider any limitations of the sampling plan and results, such as the
potential for sampling error or the representativeness of the sample, in drawing audit conclusions.

How continuing professional education can help to implement the audit sampling process
Continuing professional education (CPE) can be beneficial in many ways for auditors to implement
the audit sampling process effectively. Here are some ways in which CPE can help:

1. Staying updated with the latest sampling techniques: CPE courses can help auditors stay updated
with the latest sampling techniques and methods. This knowledge can be applied to design an
efficient and effective sampling plan, reducing sampling risk and increasing the quality of the audit.
2. Developing critical thinking and decision-making skills: CPE courses can help auditors develop critical
thinking and decision-making skills necessary for evaluating the reliability of internal controls and
financial statements. This is important when selecting a suitable sampling method and sample size.
3. Understanding audit risk: CPE courses can help auditors understand audit risk and how it relates to
sampling risk. This knowledge can be applied to determine the appropriate level of audit risk and the
necessary sample size to achieve the desired level of assurance.
4. Enhancing professional skepticism: CPE courses can help auditors enhance their professional
skepticism, which is necessary for evaluating the reasonableness of the client's assertions. This can be
achieved by selecting the appropriate sampling method and size, and evaluating the results obtained
from the sample.
5. Meeting regulatory and professional requirements: CPE courses are often mandatory for auditors to
meet regulatory and professional requirements. By completing these courses, auditors can
demonstrate their competence in implementing the audit sampling process, improving their
credibility with stakeholders.

In summary, continuing professional education can help auditors implement the audit sampling
process effectively by providing them with the necessary knowledge, skills, and tools to design an
efficient and effective sampling plan and evaluate the results obtained from the sample.

How sampling guidelines can help to implement the audit sampling process
Sampling guidelines can provide auditors with a framework for designing and executing audit
sampling procedures. They typically cover the following topics:

1. Sampling methodology: Guidelines should provide an overview of the sampling methodology that
auditors should use, including different types of sampling, sample size determination, and sampling
risk.
2. Sampling units: Guidelines should provide guidance on how to define sampling units. For example, if
the auditor is sampling accounts receivable balances, the sampling unit might be individual customer
accounts.
3. Selection methods: Guidelines should provide guidance on how to select sample items, including
random sampling, systematic sampling, and stratified sampling.
4. Evaluation of results: Guidelines should provide guidance on how to evaluate the results of the
sample, including how to measure the precision of the sample results and how to extrapolate the
results to the population.
5. Documentation: Guidelines should provide guidance on how to document the sampling procedures
and results.

By following sampling guidelines, auditors can ensure that they are using appropriate sampling
techniques and that they are following a consistent and defensible approach to sampling. This can
help to increase the reliability of the audit results and reduce the risk of errors or omissions.
Continuing professional education can also help auditors stay up-to-date on the latest sampling
guidelines and best practices.

How documentation, supervision and use of specialists can help to implement the audit sampling
process
 Documentation, supervision, and use of specialists are important aspects that can help to implement
the audit sampling process effectively.

Documentation: Adequate documentation of the audit sampling process is necessary to ensure that
the sampling method used is appropriate and effective. The documentation should include the
sampling plan, sample selection method, sample size determination, and the results of the sampling
procedures. This will ensure that the auditor can demonstrate that the audit was conducted in
accordance with professional standards.

Supervision: Supervision is an important aspect of the audit process, including the audit sampling
process. Adequate supervision of the auditors performing the sampling can help to ensure that the
sampling is conducted appropriately and effectively. The supervisor should review the sampling plan,
sample selection method, sample size determination, and the results of the sampling procedures.

Use of specialists: In some cases, the auditor may need to use specialists to help with the audit
sampling process. For example, the auditor may need a specialist to help with the statistical analysis
of the sample results. Using specialists can help to ensure that the sampling process is conducted
appropriately and effectively, and can provide the auditor with additional expertise in areas where
they may not have sufficient knowledge or experience.

In summary, documentation, supervision, and use of specialists can help to ensure that the audit
sampling process is implemented effectively and in accordance with professional standards.

Tell me the detail process of sampling in tests of controls

The process of sampling in tests of controls involves the following steps:

1. Define the objective: The first step in the process of sampling in tests of controls is to define the
objective. The objective is to determine whether the control is operating effectively or not. The
objective should be clearly defined to ensure that the sample selected is appropriate.
2. Determine the sample size: The next step is to determine the sample size. The sample size depends
on the level of assurance required, the expected error rate, and the tolerable error rate. The sample
size can be calculated using statistical methods or can be determined based on professional
judgment.
3. Select the sample: The next step is to select the sample. The sample should be selected randomly
from the population to ensure that it is representative. The auditor should ensure that the sample is
selected without any bias.
4. Perform the test of controls: Once the sample is selected, the auditor should perform the test of
controls on the sample items. The test of controls should be performed in accordance with the audit
plan and the auditing standards.
5. Evaluate the results: After performing the test of controls on the sample items, the auditor should
evaluate the results. If the results are favorable, the auditor can conclude that the control is operating
effectively. If the results are unfavorable, the auditor should perform additional tests on the
remaining population.
6. Document the results: The final step is to document the results of the test of controls. The
documentation should include the sample size, the items selected for testing, the results of the test,
and the conclusions drawn from the test.

Overall, the process of sampling in tests of controls is a systematic approach that provides the
auditor with reasonable assurance that the controls are operating effectively.

give me a detail example with data and calculation

Sure, here is an example of the process of sampling in tests of controls with data and calculations:

Assume we are auditing the sales process of a company and want to test the effectiveness of the
control over credit sales approvals. The control states that all credit sales must be approved by a
designated credit manager before being processed. We decide to use attribute sampling to test the
control.

1. Define the objective and the population: The objective is to test the effectiveness of the credit sales
approval control. The population is all credit sales transactions during the audit period.
2. Determine the sample size: We use statistical tables to determine the appropriate sample size based
on the desired level of confidence, expected deviation rate, and tolerable deviation rate. Let's assume
we want a 95% level of confidence, the expected deviation rate is 5%, and the tolerable deviation
rate is 10%. Using a statistical table for attribute sampling, we find that we need a sample size of 62
transactions.
3. Select the sample: We randomly select 62 credit sales transactions from the population of credit sales
during the audit period.
4. Perform the test: For each transaction in the sample, we examine the credit sales file to determine if
there is evidence of credit manager approval. If there is no evidence of approval, we mark it as a
deviation.
5. Calculate the deviation rate: We calculate the deviation rate as the number of deviations divided by
the sample size. Let's assume that we found 4 deviations in the sample. Then the deviation rate is
4/62 = 6.45%.
6. Evaluate the results: We compare the deviation rate to the tolerable deviation rate. Since the
deviation rate is less than the tolerable deviation rate of 10%, we can conclude that the control over
credit sales approvals is operating effectively.
7. Consider the need for further testing: If the deviation rate had exceeded the tolerable deviation rate,
we would have needed to perform additional testing to determine the nature and extent of the
control deficiency.

This example shows how attribute sampling can be used in tests of controls to evaluate the
effectiveness of a control over credit sales approvals. By randomly selecting a sample of credit sales
transactions and examining them for evidence of credit manager approval, we can make a
reasonable assessment of the control's effectiveness.

show me the table and data of statistical table for attribute sampling
Here is an example of a statistical table for attribute sampling:

Sample Size Allowable Risk of Overreliance at Tolerable Deviation Risk of Assessing Control Risk Too
(n) Rate Low

20 10% 5%

35 5% 2.5%

50 2% 1%

85 1% 0.5%

125 0.5% 0.25%

The allowable risk of overreliance at the tolerable deviation rate is the maximum risk that the auditor
is willing to accept that the control being tested is effective when it is actually not. The risk of
assessing control risk too low is the maximum risk that the auditor is willing to accept that the
control being tested is not effective when it is actually effective.

To use this table, the auditor would first determine the tolerable deviation rate, which is the
maximum rate of deviation from a prescribed control procedure that the auditor is willing to accept
while still concluding that the control is operating effectively.

For example, if the tolerable deviation rate for a control is 5%, and the auditor selects a sample size
of 50, then the allowable risk of overreliance at the tolerable deviation rate would be 2%. This means
that the auditor is willing to accept a 2% risk that the control is actually not effective even though the
sample results suggest that it is. The risk of assessing control risk too low would be 1%, which means
that the auditor is willing to accept a 1% risk that the control is actually effective even though the
sample results suggest that it is not.
 Based on these risk levels, the auditor would select a sample of 50 items from the population and
perform the appropriate audit procedures to test the control. The auditor would then evaluate the
sample results and determine whether the control is operating effectively. The results of the sample
would be projected to the entire population using statistical sampling techniques.

How to determine the test objectives, give me an example

Determining test objectives is a critical step in the audit process as it helps auditors to identify what
areas of the financial statements they need to focus on and what audit procedures to perform. Test
objectives are specific assertions that auditors want to test to determine whether the financial
statements are fairly presented. Some common test objectives include existence, completeness,
accuracy, cutoff, classification, and presentation.

Here's an example of how to determine test objectives:

Assume you are auditing a retail company's inventory. Your goal is to ensure that the inventory is
accurately valued and presented in the financial statements. To accomplish this, you would need to
consider the following test objectives:

1. Existence: Does the inventory exist physically?

2. Completeness: Is all inventory that should be included in the financial statements included?
3. Accuracy: Is the inventory properly valued and recorded?
4. Cutoff: Is the inventory recorded in the correct accounting period?
5. Classification: Is the inventory properly classified on the balance sheet?
6. Presentation: Is the inventory properly disclosed in the financial statements?

By identifying these test objectives, you can then develop specific audit procedures to test them. For
example, to test existence, you might physically observe the inventory at the client's location, while
to test completeness, you might review the company's inventory records to ensure that all inventory
is accounted for.

Define the deviation condition, example

In auditing, a deviation condition refers to a situation where a control procedure designed to prevent
or detect material misstatements in the financial statements does not function as intended. Deviation
conditions can be identified through tests of controls and may indicate a higher risk of material
misstatement.

For example, let's say an organization has a control procedure that requires all sales orders to be
approved by a supervisor before they are processed. During testing, the auditor discovers that a
significant number of sales orders were processed without proper approval, indicating a deviation
condition. This may suggest that there is a higher risk of material misstatement in the sales
transactions and require the auditor to perform additional procedures to address the risk.
Define the population, example
In auditing, a population refers to the entire group of items or transactions that are relevant to the
audit objective. The population could be a financial statement account, a transaction cycle, or an
entire organization.

For example, if an auditor is testing the accounts receivable balance of a company, the population
would be the complete list of all outstanding customer balances on the date of the financial
statements. This could include hundreds or thousands of individual customer accounts. The auditor
would need to select a representative sample of these accounts for testing in order to make an
assessment of the overall accuracy of the account balance.

Define the period covered by the test. Give me a detail example to show initial testing, estimate
population and consider the completeness of the population.
The period covered by the test refers to the time frame over which the auditor is testing the
transactions and balances of the client's financial statements. The period will vary depending on the
nature and complexity of the audit engagement.

For example, let's say an auditor is performing an audit of ABC Company for the year ended
December 31, 2022. The initial testing is done to evaluate the effectiveness of the client's internal
control system over the financial reporting process. During the testing, the auditor selects a sample
of 50 sales transactions from the month of January 2022 and performs the test of controls on these
transactions.

After performing the initial testing, the auditor estimates the population and considers the
completeness of the population. The auditor determines that there were a total of 12,000 sales
transactions during the year. Since the auditor only tested 50 transactions, this represents a sample
size of 0.42% (50/12,000) of the population.

To determine whether the population is complete, the auditor obtains a listing of all sales
transactions for the year and compares it to the general ledger. The auditor identifies 50 sales
transactions that were not recorded in the general ledger and considers this to be a deviation
condition.

Based on the deviation condition, the auditor increases the sample size to 100 transactions and re-
performs the test of controls. The auditor identifies an additional 5 transactions with deviation
conditions. The auditor then uses statistical sampling techniques to project the deviation rate to the
population of 12,000 transactions and determines whether the deviation rate is material to the
financial statements.

Define the sample unit, example

 Sample unit refers to an individual item, account balance, transaction or any other component that is
selected for testing in the sample. The sample unit must be clearly defined to avoid any confusion
and ensure that the sample is representative of the population.

For example, in a sales transaction population, the sample unit may be each individual sales invoice.
In an accounts payable population, the sample unit may be each invoice entered into the accounts
payable system. In an inventory population, the sample unit may be each individual item in a
warehouse.

The sample unit should be selected in a way that ensures that every item in the population has an
equal chance of being selected for testing. This can be achieved by using a random selection method
such as systematic sampling, stratified sampling or simple random sampling.

How to determine the method of selecting the sample

The method of selecting the sample in audit sampling can be determined based on the auditor's
judgment and the objectives of the audit test. Here are some factors that may be considered when
determining the method of selecting the sample:

1. The size of the population: If the population is large, the auditor may choose a method that involves
selecting a smaller sample size, such as systematic or random sampling.
2. The level of risk: If the auditor is concerned about a higher level of risk, they may choose a method
that involves a larger sample size, such as stratified random sampling.
3. The nature of the items being tested: If the items being tested are expected to be homogeneous, the
auditor may choose a method that involves selecting a smaller sample size, such as systematic
sampling. If the items are expected to be heterogeneous, the auditor may choose a method that
involves selecting a larger sample size, such as stratified random sampling.
4. The desired level of precision: If the auditor desires a higher level of precision, they may choose a
method that involves selecting a larger sample size, such as stratified random sampling.
5. The time and cost constraints: The auditor may need to consider the time and cost constraints
associated with selecting and testing the sample, and choose a method that is efficient and cost-
effective.

For example, if an auditor is testing the accuracy of sales transactions in a large retail store chain with
multiple locations, they may choose to use stratified random sampling to select a sample of sales
transactions from each location. This method would allow the auditor to estimate the total
misstatement for the entire population with a higher level of precision. However, if the auditor is
testing the accuracy of cash receipts for a small business with a limited number of transactions, they
may choose to use simple random sampling to select a smaller sample size.

Detail example with data and calculation process of random number sampling method, systematic
sampling method and other commonly used methods
Sure, here is a detailed example with data and calculation process of random number sampling
method, systematic sampling method, and other commonly used methods.
 Example: Suppose a company has 10,000 customer accounts and the auditor wants to test a sample
of 100 accounts for accuracy of billing. The auditor can use different sampling methods to select the
sample.

1. Random Number Sampling Method: The auditor can use the following steps to select a random
sample of 100 accounts using random number sampling method:

Step 1: Define the population - The population is the 10,000 customer accounts of the company.
Step 2: Determine the sample size - The sample size is 100 accounts. Step 3: Assign numbers to each
account - The auditor assigns a unique number to each account, from 1 to 10,000. Step 4: Generate
random numbers - The auditor uses a random number generator to generate 100 random numbers
between 1 and 10,000. Step 5: Select the sample - The auditor selects the accounts that correspond
to the 100 random numbers generated in step 4.

For example, if the random number generator generates the following 10 random numbers: 458,
1225, 3117, 6234, 7748, 8912, 9577, 9980, 10000, 5555, then the auditor would select the accounts
with those corresponding numbers.

2. Systematic Sampling Method: The auditor can use the following steps to select a systematic sample
of 100 accounts using systematic sampling method:

Step 1: Define the population - The population is the 10,000 customer accounts of the company.
Step 2: Determine the sample size - The sample size is 100 accounts. Step 3: Calculate the sampling
interval - The sampling interval is calculated by dividing the population size by the sample size. In
this case, the sampling interval is 100 (i.e. 10,000/100). Step 4: Select the starting point - The auditor
selects a starting point at random between 1 and the sampling interval. Suppose the starting point is
27. Step 5: Select the sample - The auditor selects every 100th account from the starting point. For
example, the auditor would select the 27th account, the 127th account, the 227th account, and so
on, until a total of 100 accounts are selected.

3. Stratified Sampling Method: The auditor can use the following steps to select a stratified sample of
100 accounts using stratified sampling method:

Step 1: Define the population - The population is the 10,000 customer accounts of the company.
Step 2: Determine the sample size - The sample size is 100 accounts. Step 3: Divide the population
into strata - The auditor divides the population into strata based on a relevant characteristic, such as
account size or geographic location. Step 4: Determine the sample size for each stratum - The
auditor determines the sample size for each stratum based on the proportion of the population in
each stratum. Step 5: Select the sample from each stratum - The auditor selects a random sample
from each stratum based on the sample size determined in step 4.

For example, if the auditor divides the population into two strata based on account size - accounts
with balances over $10,000 and accounts with balances under $10,000, and the auditor determines
that 60% of the population is in the first stratum and 40% of the population is in the second stratum,
 and the auditor wants to select 60 accounts from the first stratum and 40 accounts from the second
stratum, then the auditor would randomly select 60 accounts from

continue
I'm sorry, but I believe you may have accidentally cut off your previous message. Could you please
repeat or clarify what you were asking for?

give me a detail example of Stratified Sampling Method:

Sure, here's an example of how stratified sampling can be used in an audit:

Suppose a company has four divisions: A, B, C, and D, and the auditor wants to sample accounts
receivable balances to test for accuracy. However, the auditor suspects that division C has a higher
risk of errors in its balances due to recent turnover in the accounting department.

To address this, the auditor can use stratified sampling. The first step is to divide the population
(accounts receivable balances) into strata based on division: A, B, C, and D. The second step is to
determine the sample size for each stratum based on the relative size of the stratum and the desired
level of precision.

For example, the auditor may decide to sample 25% of the accounts receivable balances in each
stratum. If division C has a larger accounts receivable balance than the other divisions, the sample
size for division C would be larger than the other divisions. The auditor can use statistical software to
generate random samples within each stratum based on the determined sample size.

Once the samples are selected, the auditor can test the accounts receivable balances for accuracy
and completeness. If errors are found in division C, the auditor can conclude that there is a higher
risk of errors in that division and may need to perform additional testing or recommend changes to
the accounting processes in that division.

Overall, stratified sampling allows the auditor to focus on specific areas of the population that are
deemed higher risk and can provide more precise estimates of errors in each stratum.

How to determine the sample size, list out what to consider

Determining the appropriate sample size is an important aspect of audit sampling. The following are
some factors that should be considered when determining the sample size:

1. Desired level of assurance: The level of assurance required by the auditor should be considered. For
example, if the auditor wants a higher level of assurance, then a larger sample size may be required.
2. Tolerable error: The tolerable error is the maximum error that the auditor is willing to accept. This
should be determined based on the materiality of the account or balance being audited.
3. Expected error rate: The expected error rate is the rate of error that is expected to be found in the
population. This can be based on previous experience or industry standards.
4. Population size: The size of the population being sampled should be considered, as a larger
population may require a larger sample size.
5. Variability: The variability of the population being sampled should be considered, as a more variable
population may require a larger sample size.
6. Method of sampling: The method of sampling being used should be considered, as some methods
may require larger sample sizes than others.
7. Cost and time constraints: The cost and time constraints of the audit should also be considered when
determining the sample size.

Once these factors have been considered, the auditor can use statistical tables or software to
determine the appropriate sample size.

For example, if an auditor is planning to use attribute sampling to test the effectiveness of a control,
they might consider the following factors:

1. Desired level of assurance: The auditor wants to be 95% confident that the control is effective.
2. Tolerable error: The auditor is willing to accept an error rate of no more than 5%.
3. Expected error rate: Based on prior experience, the auditor expects the error rate to be 2%.
4. Population size: The population being sampled is 10,000 transactions.
5. Variability: The auditor believes that the population is relatively homogenous.
6. Method of sampling: The auditor plans to use random sampling.
7. Cost and time constraints: The auditor has budgeted for a sample of 100 transactions.

Based on these factors, the auditor could use a statistical table or software to determine that a
sample of 97 transactions would be appropriate to achieve the desired level of assurance.

Example of considering the acceptable risk of assessing control risk too low
Sure, here is an example:

Suppose an auditor is conducting an audit of a company's inventory controls. The auditor wants to
test the effectiveness of the company's physical inventory count procedures, which are a key control
in preventing material misstatements in the financial statements. The auditor determines that a
deviation rate of no more than 5% would be acceptable for this control.

The auditor considers the risk of assessing control risk too low, which means that the auditor
concludes that the control is effective when in fact it is not. If the auditor sets the acceptable risk of
assessing control risk too low at 5%, this means that the auditor is willing to accept a 5% chance of
concluding that the control is effective when it is actually not.

Based on historical data and professional judgment, the auditor estimates that the population
deviation rate (the actual rate of errors in the population of inventory counts) is likely to be around
10%. The auditor also determines that a confidence level of 95% is appropriate for this test.
Using these parameters, the auditor can use statistical tables or software to determine the
appropriate sample size for testing the control. For example, using attribute sampling, the auditor
may find that a sample size of 57 is required to achieve a 95% confidence level with a 5% precision
(meaning the margin of error around the sample estimate should not exceed 5%). This sample size
takes into account the auditor's assessment of the acceptable risk of assessing control risk too low,
as well as the auditor's estimate of the population deviation rate.

Once the sample is selected and the testing is performed, the auditor can use the results to assess
the effectiveness of the control and make a final determination of control risk. If the actual deviation
rate in the sample is less than the acceptable deviation rate set by the auditor, the auditor may
conclude that the control is effective. If the actual deviation rate exceeds the acceptable rate, the
auditor may need to consider whether to increase the sample size or perform additional testing to
determine the true effectiveness of the control.

Example of considering the tolerable rate

Sure, here's an example of considering the tolerable rate:

Assume that a company has a total population of 10,000 sales transactions for the year, and the
auditor has decided to perform a test of controls on a sample of sales invoices to evaluate the
effectiveness of the company's control over the accuracy of the invoices.

The auditor has determined that the tolerable rate of deviation is 5%, which means that the auditor
would be willing to accept a maximum deviation rate of 5% in the population and still conclude that
the control is effective.

To determine the appropriate sample size, the auditor must also consider the expected deviation
rate and the acceptable risk of assessing control risk too low. Let's assume that the auditor expects a
deviation rate of 3%, and has set the acceptable risk of assessing control risk too low at 10%.

Using statistical sampling techniques, the auditor calculates that a sample size of 278 sales invoices is
required to achieve a desired level of precision, given the tolerable rate, expected deviation rate, and
acceptable risk of assessing control risk too low.

The auditor then selects a random sample of 278 sales invoices from the population and performs
the test of controls. If the deviation rate in the sample is less than or equal to the tolerable rate of
5%, the auditor can conclude that the control is effective. If the deviation rate in the sample exceeds
the tolerable rate, the auditor must perform additional testing to determine the nature and extent of
the control deficiency.

Example of considering the expected population deviation rate

Sure, here's an example of considering the expected population deviation rate in determining the
sample size for an attribute sampling plan:
 Assume that an auditor is testing the effectiveness of internal controls over cash disbursements.
Based on prior experience and discussions with management, the auditor expects that the
population deviation rate (i.e., the rate at which controls fail) for this area is approximately 10%. The
auditor also wants to achieve a 5% risk of incorrect acceptance and a 10% risk of incorrect rejection.

Using these inputs, the auditor can calculate the necessary sample size using the following formula
for attribute sampling:

n = (Z^2 * p * (1-p)) / e^2

where:

n = sample size Z = the standard normal deviate corresponding to the desired risk of incorrect
acceptance (e.g., 1.96 for a 5% risk) p = the expected population deviation rate (i.e., 10%) e = the
desired precision (i.e., how close the sample estimate should be to the true population value; assume
5% for this example)

Plugging in the values, the auditor would calculate:

n = (1.96^2 * 0.1 * 0.9) / 0.05^2 = 73.36

Rounding up to the nearest whole number, the auditor would select a sample size of 74. This means
that the auditor plans to test 74 cash disbursements to assess the effectiveness of internal controls.

Example of considering the effect of population size approach

Sure, here's an example of how to consider the effect of population size on determining sample size:

Assume that an auditor is planning to perform an attributes sampling test on a population of

invoices to test for the presence of proper authorization. The auditor estimates the tolerable rate of
deviation to be 5% and wants to achieve a 95% level of confidence.

The auditor also estimates that the population size of invoices is 10,000. The auditor has decided to
use the statistical sampling formula for attributes sampling with a desired precision rate of 5%.

To calculate the sample size, the auditor must consider the effect of population size on the sample
size calculation. Using the formula for the sample size with finite populations, the auditor determines
that the sample size is:

n = (Z^2 * p * q * N) / [(Z^2 * p * q) + (N - 1) * d^2]

where:

 Z is the reliability factor (1.96 for 95% confidence)

 p is the auditor's estimate of the population deviation rate (unknown in this case)
 q is the complementary value of p (1-p)
 N is the population size (10,000)
 d is the desired precision rate (5%)

Assuming the auditor has no prior knowledge of the population deviation rate, the auditor will use a
conservative estimate of p = 0.5. Plugging in the values, the sample size calculation is:

n = (1.96^2 * 0.5 * 0.5 * 10,000) / [(1.96^2 * 0.5 * 0.5) + (10,000 - 1) * 0.05^2] = 384

Therefore, the auditor should select a sample size of 384 invoices to achieve the desired level of
confidence with a precision rate of 5%, taking into account the effect of population size on the
sample size calculation.

Example of considering the sequential or a fixed sample size approach

Sure, here's an example of considering the sequential or fixed sample size approach:

Let's say an auditor is performing a substantive test of accounts receivable and wants to use the
sequential sampling approach to determine the sample size. The tolerable misstatement is $50,000
and the auditor expects the population standard deviation to be $10,000. The auditor also wants to
have a 5% risk of incorrect acceptance and a 10% risk of incorrect rejection.

The auditor decides to use a risk function approach to determine the sample size. Based on the
formula for the sample size using this approach, the auditor determines that a sample size of 41
would be appropriate.

However, the auditor also considers the fixed sample size approach and decides to use a sample size
of 50 instead. This is because the auditor is concerned about the possibility of missing a material
misstatement in the population and wants to have a larger sample size to ensure a higher degree of
confidence.

Using the fixed sample size approach, the auditor selects a sample of 50 accounts receivable
balances from the population and performs the substantive procedures on those accounts. If the
total misstatement found in the sample is less than the tolerable misstatement, the auditor would
accept the population as fairly stated. If the total misstatement found in the sample exceeds the
tolerable misstatement, the auditor would conclude that the population is materially misstated.

how to develop a sample size guideline, example

Developing a sample size guideline involves considering various factors such as the population size,
tolerable error rate, expected deviation rate, and desired level of confidence. Here is an example of
developing a sample size guideline:
 Suppose a company wants to test the effectiveness of its internal control over cash receipts. The
company has a total of 10,000 cash receipts transactions for the year, and the auditor wants to test a
sample of transactions to ensure that the internal control is functioning effectively. The following
information is available:

 Tolerable error rate: 5%

 Expected deviation rate: 2%
 Desired level of confidence: 95%
 Population size: 10,000

To determine the appropriate sample size, the auditor can use the following formula:

Sample size = [(Z^2 * p * q * N) / E^2 * (N-1) + Z^2 * p * q]

Where: Z = the standard normal distribution value for the desired level of confidence (1.96 for 95%
confidence level) p = the expected deviation rate (0.02) q = 1 - p (0.98) N = the population size
(10,000) E = the tolerable error rate (0.05)

Plugging in the values, the formula becomes:

Sample size = [(1.96^2 * 0.02 * 0.98 * 10,000) / (0.05^2 * (10,000-1)) + 1.96^2 * 0.02 * 0.98] Sample
size = 370

Therefore, the auditor should test a sample size of 370 cash receipt transactions to achieve a 95%
level of confidence, with a tolerable error rate of 5% and an expected deviation rate of 2%.

How to perform the sampling plan, example

Performing a sampling plan involves selecting the sample units, conducting the tests, evaluating the
results, and drawing conclusions. Here is an example of how to perform a sampling plan using the
attribute sampling method:

1. Define the population: A population of 1000 invoices for the year ended December 31, 2022.
2. Define the sampling unit: An invoice.
3. Determine the sample size: A sample size of 100 invoices using a 5% tolerable deviation rate and a
10% expected deviation rate.
4. Select the sample: Randomly select 100 invoices from the population.
5. Test the sample: Examine the 100 invoices for the presence of the control being tested. Record any
deviations from the control.
6. Calculate the sample deviation rate: Calculate the number of invoices with deviations divided by the
total number of invoices in the sample.
7. Evaluate the results: Compare the sample deviation rate to the tolerable deviation rate. If the sample
deviation rate is less than or equal to the tolerable deviation rate, conclude that the control is
operating effectively. If the sample deviation rate is greater than the tolerable deviation rate,
conclude that the control is not operating effectively.
8. Project the results: Project the sample deviation rate to the population using statistical methods to
estimate the likely deviation rate in the population.
9. Document the sampling plan and results: Document the sampling plan, including the population,
sample size, sampling method, and results of the tests.

Define voided documents, example

Voided documents refer to documents that have been intentionally cancelled or invalidated and
should not be used for any further processing. These documents are usually marked with the word
"VOID" in large letters to indicate that they are no longer valid.

For example, a company may issue a voided check to a vendor if there was an error in the payment
amount or if the payment was made to the wrong vendor. The company would mark the check as
void and issue a new check with the correct payment amount or vendor information. The voided
check would be retained for record-keeping purposes but would not be used for payment. Similarly,
a voided invoice may be issued if there was an error in the billing information, and the invoice needs
to be cancelled and reissued with the correct information.

define unused or inapplicable documents, example

Unused or inapplicable documents are documents that are not relevant to the audit objective or are
not used during the period under audit. These documents may be excluded from the population and
sampling process.

For example, consider an audit of a company's accounts payable process. The audit objective is to
determine whether all purchases are authorized and properly recorded in the accounts payable
system. In this case, invoices related to non-purchase transactions, such as payroll or fixed asset
acquisitions, may be considered as unused or inapplicable documents and excluded from the
population and sampling process.

define misstatements in estimating population sequences, example

Misstatements in estimating population sequences occur when the auditor identifies misstatements
in the sample and extrapolates them to the entire population. This can lead to over or under-
estimation of the total misstatement in the population. For example, if an auditor examines a sample
of 50 invoices and finds a misstatement rate of 10%, and the population consists of 1000 invoices,
the auditor may conclude that there are 100 misstatements in the population. However, if the
misstatement rate is not uniform across the population, the actual number of misstatements could
be significantly different from the estimate.

How to stop the test before completion, example

 Stopping a test before completion may occur for various reasons, such as if the audit objectives have
been met, if a significant error or fraud has been detected, or if the cost of continuing the test
outweighs the benefits of additional information.

For example, suppose an auditor is conducting a substantive test of accounts receivable and has a
sample size of 100. After testing 75 items, the auditor identifies several significant misstatements
that, when projected to the entire population, would exceed the materiality threshold. At this point,
the auditor may determine that further testing is unnecessary and that the objectives have been met.
In this case, the auditor may stop the test before completing the remaining 25 items. However, the
auditor must document the rationale for stopping the test early and assess the potential impact on
the overall audit opinion.

What to do if can not be able to examine selected items. example

If an auditor is unable to examine a selected item due to various reasons such as the item being lost,
destroyed, or not available, they should perform alternative audit procedures. The nature of the
alternative procedures will depend on the reason for not being able to examine the selected item
and the audit objective. Some possible alternative procedures include:

1. Examining other items: The auditor can examine other similar items in the population to obtain
evidence regarding the audit objective.
2. Revising the sample: If the reason for not being able to examine the selected item is due to it being
lost or destroyed, the auditor may need to revise the sample and select a replacement item.
3. Using other sources of information: The auditor can obtain information from other sources such as
management or third parties to obtain evidence regarding the audit objective.
4. Consider the implications: The auditor should consider the implications of not being able to examine
the selected item on the audit opinion and the reliability of the evidence obtained.

Example:

An auditor is testing the effectiveness of internal controls over cash receipts. As part of the testing,
the auditor selects a sample of 50 cash receipts and requests supporting documentation. During the
testing, the auditor finds that the supporting documentation for one of the receipts is not available
as it was destroyed due to a fire at the company's premises. In this case, the auditor can perform
alternative procedures such as examining other receipts in the sample, revising the sample to select a
replacement item, or obtaining information from other sources such as management or third parties
to obtain evidence regarding the audit objective. The auditor should consider the implications of not
being able to examine the selected item on the audit opinion and the reliability of the evidence
obtained.

How to evaluate the samples results, example

To evaluate the sample results, the auditor needs to compare the sample results to the audit criteria,
which are the expected results based on the control objectives or financial statement assertions
being tested. The auditor then determines whether the sample results provide sufficient evidence to
support the auditor's conclusion about the control or financial statement assertion being tested.

For example, if an auditor is testing the effectiveness of a control over cash receipts, the audit criteria
might be that all cash receipts are deposited daily and recorded in the cash receipts journal. The
auditor selects a sample of cash receipts and examines them to determine whether they were
deposited daily and recorded in the cash receipts journal. If the sample results indicate that some
cash receipts were not deposited daily or recorded in the cash receipts journal, the auditor must
determine whether these exceptions are significant enough to cause the control to be ineffective.

If the sample results provide sufficient evidence to support the auditor's conclusion about the
control or financial statement assertion being tested, the auditor can extend the conclusion to the
population from which the sample was drawn. If the sample results do not provide sufficient
evidence, the auditor may need to perform additional testing or conclude that the control or
financial statement assertion is not effective.

How to determine the deviation rate, example with detail data and process
To determine the deviation rate, the auditor needs to first count the number of items that deviated
from the expected condition in the sample. The deviation rate is then calculated by dividing the
number of deviations by the sample size.

For example, let's assume an auditor selects a sample of 50 sales invoices to test the accuracy of
sales recording. The auditor identifies 5 invoices with errors, indicating that the actual deviation rate
in the sample is 10% (5/50).

To estimate the deviation rate in the population, the auditor needs to use statistical methods to
calculate the upper limit of the true deviation rate with a certain level of confidence. This is typically
done using a statistical formula or a table.

For instance, assuming a 95% confidence level and a sample size of 50, the auditor can use the
following formula to calculate the upper limit of the true deviation rate:

Upper limit of true deviation rate = Sample deviation rate + Allowance for sampling risk

Allowance for sampling risk = z-score x standard error

where z-score is the value from a standard normal distribution corresponding to the desired
confidence level (e.g., 1.96 for 95% confidence level), and standard error is the standard deviation of
the sample proportion, calculated as:

Standard error = square root [(sample deviation rate x (1 - sample deviation rate)) / sample size]

Assuming a sample deviation rate of 10%, the standard error can be calculated as:
Standard error = square root [(0.1 x 0.9) / 50] = 0.066

The allowance for sampling risk can then be calculated as:

Allowance for sampling risk = 1.96 x 0.066 = 0.13

Thus, the upper limit of the true deviation rate is:

Upper limit of true deviation rate = 0.10 + 0.13 = 0.23 or 23%

This means that with 95% confidence, the true deviation rate in the population is not likely to exceed
23%. If the upper limit of the true deviation rate is below the tolerable deviation rate set by the
auditor, the auditor can conclude that the control is operating effectively. If the upper limit exceeds
the tolerable deviation rate, the auditor may need to perform additional testing or conclude that the
control is not operating effectively.

how to determine the sampling risk, example

Sampling risk is the risk that the auditor's conclusion based on the sample might be different from
the conclusion that would be reached if the auditor examined every item in the population.

To determine the sampling risk, the auditor needs to consider the sample size, the tolerable
deviation rate, the expected deviation rate, and the level of assurance required.

Here's an example:

Assume an auditor is performing an audit of accounts receivable and wants to test the accuracy of
the allowance for doubtful accounts balance. The tolerable deviation rate is 5%, and the expected
deviation rate is 3%. The auditor selected a sample of 100 items and found 4 items with
misstatements.

To determine the sampling risk, the auditor can use the following formula:

Sampling risk = (tolerable deviation rate - sample deviation rate) / (tolerable deviation rate)

In this example, the sample deviation rate is 4% (4 items with misstatements out of 100 items).

Sampling risk = (5% - 4%) / 5% = 20%

Therefore, the sampling risk is 20%, which means there is a 20% chance that the auditor's conclusion
based on the sample might be different from the conclusion that would be reached if the auditor
examined every item in the population.
 How to determine the qualitative aspects of the deviations, example
The qualitative aspects of deviations refer to the nature and impact of the identified deviations on
the financial statements and the audit opinion. It involves evaluating the materiality of the deviations
and assessing the potential consequences of such deviations on the overall financial statements.

For example, let's say an auditor is performing an audit of a company's inventory and selects a
sample of items for testing. The auditor finds that some of the items were not properly valued,
resulting in a deviation from the company's accounting policies.

To determine the qualitative aspects of the deviations, the auditor would evaluate the materiality of
the misstatement and the potential impact on the financial statements. The auditor would assess the
impact of the misstatement on the company's inventory balance and evaluate whether it could
potentially result in a material misstatement on the overall financial statements.

The auditor would also consider the potential causes of the misstatement, such as a breakdown in
internal controls or a mistake by an individual in the inventory management team. The auditor would
assess the risks associated with the misstatement and evaluate whether any additional procedures
are necessary to address the identified risks.

Based on this evaluation, the auditor would determine the appropriate course of action and provide
recommendations to the company's management for addressing the identified deviations.

How to document the sampling procedure, example

Documenting the sampling procedure is an essential part of the audit process. The following are the
steps for documenting the sampling procedure along with an example:

1. State the objective of the sampling procedure: The objective of the sampling procedure should be
clearly stated to provide a context for the audit work performed.

Example: The objective of the sampling procedure is to evaluate the effectiveness of the internal
control system for processing sales transactions.

2. Describe the sampling method used: The sampling method used should be described in detail,
including any specific parameters that were used.

Example: The sampling method used was systematic sampling. A sampling interval of 10 was used to
select a sample of 50 sales invoices from a population of 500.

3. Explain the sample size determination: The sample size determination should be explained in detail,
including any relevant factors that were considered.
 Example: The sample size was determined based on a 5% tolerable deviation rate, an expected
deviation rate of 2%, and a population size of 500. Using the appropriate formula, a sample size of 50
was determined.

4. Provide details of the sample selection process: The sample selection process should be
documented, including any software or tools used.

Example: The sample was selected using a systematic sampling method in Microsoft Excel. The first
invoice selected was chosen at random from the first 10 invoices, and every 10th invoice thereafter
was selected until a sample of 50 invoices was obtained.

5. Document the audit procedures performed: The audit procedures performed on the sample should
be documented in detail.

Example: For each invoice in the sample, we traced the sales amount to the sales journal and the
cash receipts journal to ensure that the invoice was recorded and properly paid. We also verified the
authorization and approval of the invoice and checked for any discrepancies or irregularities.

6. Document the results of the sampling procedure: The results of the sampling procedure should be
documented, including any deviations found and the estimated deviation rate.

Example: Out of the 50 sales invoices sampled, 3 were found to have errors. Based on this result, the
estimated deviation rate is 6%, which is higher than the tolerable deviation rate of 5%.

7. Explain the conclusions and recommendations: The conclusions and recommendations based on the
results of the sampling procedure should be documented, including any further audit procedures
required.

Example: Based on the results of the sampling procedure, we conclude that the internal control
system for processing sales transactions is not effective in preventing errors. We recommend that
further audit procedures be performed to identify the root cause of the errors and to make
appropriate recommendations for improvement.

8. Sign and date the documentation: The documentation of the sampling procedure should be signed
and dated by the auditor.

Example: [Auditor's signature and date]

What to determine when sampling in substantive tests of details

When sampling in substantive tests of details, the following factors should be determined:

1. Test objectives: The specific assertions being tested should be clearly defined.
2. Population: The population should be clearly defined and identified.
3. Sampling unit: The sampling unit should be clearly defined and identified.
4. Sample size: The sample size should be determined based on the level of risk, population size,
tolerable error, and other relevant factors.
5. Method of selection: The method of selecting the sample should be determined based on the nature
of the population and the objectives of the test.
6. Items to be tested: The specific items to be tested should be identified.
7. Evaluation of results: The criteria for evaluating the results of the test should be determined.
8. Documentation: The sampling procedure should be clearly documented, including the test
objectives, population, sampling unit, sample size, method of selection, items tested, and evaluation
of results.

How to determine the test objective, example

The test objective in substantive tests of details is to detect material misstatements in the financial
statements. For example, the auditor may want to test the completeness and accuracy of the
accounts receivable balance by selecting a sample of customer invoices and matching them to the
corresponding sales transactions and shipping documents.

To illustrate, let's say that an auditor is conducting a substantive test of details for the accounts
receivable balance of a company. The test objective is to determine whether the balance is fairly
stated in accordance with accounting standards. The auditor selects a sample of 50 customer
invoices for testing and performs the following procedures:

1. Confirms the balances with customers to verify the existence of the receivables.
2. Examines the invoices for evidence of completeness, accuracy, and proper classification.
3. Reconciles the balances to the general ledger to ensure accuracy.

Based on the results of the audit procedures, the auditor may find that there are discrepancies or
misstatements in the sample items. The auditor would then project the results to the entire
population of accounts receivable to estimate the total misstatement. If the projected misstatement
is material, the auditor may conclude that the financial statements are not fairly stated and may need
to adjust the accounts receivable balance accordingly. The auditor would then document the
sampling procedures and findings in the audit working papers.

How to define the population considering the completeness of the population, and identifying
individually significant items, example
Defining the population is an important step in performing substantive tests of details. It involves
identifying the group of items that are relevant to the audit objective and ensuring that the
population is complete. When determining the population, it is also important to identify individually
significant items, which are items that have a material impact on the financial statements.

For example, suppose a company has a balance sheet account for accounts receivable. The audit
objective is to test the completeness of accounts receivable, and the auditor determines that the
population is all accounts receivable recorded in the general ledger. The auditor also identifies
 individually significant items, such as accounts with large balances or accounts that have been
outstanding for a long time.

To ensure the completeness of the population, the auditor may perform additional procedures such
as reviewing customer account reconciliations or analyzing cash receipts to identify any unrecorded
receivables. The auditor may also use statistical sampling methods to test a sample of accounts
receivable to provide reasonable assurance that the balance is not materially misstated.

How to define the sampling unit, example

In substantive testing, the sampling unit is the individual item or transaction that is being tested
within the population. The sampling unit can be defined based on the level of detail necessary to
achieve the audit objective. For example, if the audit objective is to test the accuracy of inventory
counts, the sampling unit may be defined as individual inventory items.

Here's an example:

ABC Company has a total inventory balance of $10,000,000 as of December 31, 2022. The auditor's
objective is to test the accuracy of inventory counts. The auditor defines the sampling unit as
individual inventory items, such as specific types of products or parts.

The auditor then selects a sample of inventory items to test. The sample size is determined based on
the risk of material misstatement and the desired level of assurance. For example, the auditor may
select a sample of 100 inventory items to test.

The auditor then performs the necessary substantive testing procedures on the selected sample
items. This may include physical observation of the inventory, confirmation of the inventory balances
with third parties, or tracing the inventory balances to purchase invoices and shipping documents.

Based on the results of the substantive testing, the auditor then extrapolates the results to the entire
population. If significant misstatements are found in the sample, the auditor may conclude that there
is a material misstatement in the population and adjust the financial statements accordingly.

how to choose an audit sampling technique, example

Choosing an appropriate audit sampling technique depends on the nature of the audit objective and
the characteristics of the population being tested. Some commonly used techniques are:

1. Random Sampling: This technique involves selecting items from the population at random. The
sample size and selection method are based on statistical principles, and each item in the population
has an equal chance of being selected.

Example: A company wants to test its accounts payable balances to ensure their accuracy. The
auditor randomly selects 50 invoices from a population of 500 invoices.
2. Systematic Sampling: This technique involves selecting items from the population based on a
predetermined pattern or interval. The interval is determined by dividing the population size by the
sample size.

Example: An auditor wants to test the completeness of a company's sales transactions. The auditor
selects every 10th sales invoice from a population of 1000 sales invoices.

3. Stratified Sampling: This technique involves dividing the population into subgroups or strata and
selecting a sample from each subgroup. This technique can increase the efficiency and accuracy of
the audit by reducing the sampling risk.

Example: An auditor wants to test the inventory balances of a company with multiple locations. The
auditor divides the population into subgroups based on the location and selects a sample from each
subgroup.

4. Monetary Unit Sampling: This technique involves selecting items from the population based on their
monetary value. Each monetary unit in the population has an equal chance of being selected, and
the sample size is determined based on the auditor's desired level of assurance.

Example: An auditor wants to test the accuracy of a company's accounts receivable balances. The
auditor selects a sample of invoices based on their dollar value, with larger dollar amounts having a
higher chance of being selected.

5. Haphazard Sampling: This technique involves selecting items from the population based on the
auditor's judgment or discretion. The sample is selected without any predetermined pattern or
interval.

Example: An auditor wants to test the completeness of a company's purchase orders. The auditor
selects a sample of purchase orders by randomly choosing items from the population without any
specific pattern or criteria.

The choice of sampling technique depends on the auditor's judgment, the characteristics of the
population being tested, and the level of assurance required.

How to determine the method of selecting the sample, example

The method of selecting the sample in substantive tests of details can depend on various factors
such as the size and complexity of the population, the inherent risk of the account, the type of items
being tested, and the audit resources available. Here is an example of how to determine the method
of selecting the sample:

Example: Suppose an auditor is performing substantive testing on accounts receivable for a client.
The auditor has determined that the population consists of 10,000 customer accounts, and they want
to select a sample to test the accuracy of the account balances.
 The auditor considers several methods of selecting the sample, including:

1. Random Sampling: The auditor could randomly select a sample of accounts from the entire
population, using a statistical random number generator. This method ensures that each account has
an equal chance of being selected.
2. Stratified Sampling: The auditor could divide the population into strata based on factors such as the
size of the account balance, age of the account, or type of customer. The auditor would then
randomly select a sample from each stratum. This method can provide a more representative sample
and can reduce the sampling risk.
3. Haphazard Sampling: The auditor could use their professional judgment to select a sample of
accounts that they believe are relevant or have a higher risk of misstatement. This method can be
useful when there is a limited amount of time or resources available.

After considering the above methods, the auditor decides to use stratified sampling based on the
size of the account balance. The auditor divides the population into three strata based on the
account balance: small, medium, and large. The auditor then randomly selects a sample of 30
accounts from each stratum, for a total sample size of 90 accounts. The auditor believes that this
method will provide a more representative sample and reduce the sampling risk.

how to determine the sample size, consider the following: variation within the population, the
acceptable level of risk, the tolerable misstatement, the expected amount of misstatement, and the
effect of population size. give detail example.
Sure, here's an example of how to determine the sample size for a substantive test of details using
dollar unit sampling.

Assume that we are auditing the accounts receivable balance of a company and we want to test the
completeness of the accounts receivable population. The accounts receivable balance is $1,000,000
and we have determined that the tolerable misstatement is $50,000. We also estimate that the
expected misstatement is $25,000.

To determine the appropriate sample size, we will use dollar unit sampling. This involves dividing the
population into dollar units and then selecting a sample of these dollar units for testing. The sample
size is determined by the formula:

Sample Size = (Population Amount × Tolerable Misstatement) / (Expected Misstatement × Dollar

Unit)

In this case, we will use a dollar unit of $100. Therefore, the population size is 10,000 ($1,000,000 ÷
$100). Substituting the relevant figures into the formula, we get:

Sample Size = ($1,000,000 × $50,000) / ($25,000 × $100) = 200

This means that we should select a sample of 200 dollar units for testing.
 We also need to consider the effect of population size on our sample size. If the population is very
large, we may need to increase our sample size to ensure that we have a representative sample.
However, in this case, our population is not very large so we do not need to make any adjustments.

Finally, we should consider the variation within the population. If the variation is high, we may need
to increase our sample size to ensure that we capture this variability in our sample. However, if the
variation is low, we may be able to reduce our sample size. We do not have enough information to
make a determination about the variation in this case, so we will assume a moderate level of
variation and keep our sample size at 200.

How to perform the sampling plan, example

Performing the sampling plan involves selecting the sample and testing the items in the sample to
determine if they are materially misstated. Here's an example of how to perform a sampling plan:

Suppose an auditor is testing the accounts receivable balance of a company and wants to use a
systematic sampling method. The population of accounts receivable has 1,000 items, and the auditor
has determined that a sample size of 60 items is appropriate based on the factors mentioned above.

The auditor decides to use a systematic sampling method by selecting every 17th item on the list of
accounts receivable. The first item selected is number 17, the second item selected is number 34, and
so on until the sample of 60 items is selected.

The auditor then examines the sample of 60 accounts receivable to determine if there are any
material misstatements. For example, the auditor may confirm the balance with the customer, review
supporting documentation, and test for collectability. If a misstatement is found in one of the sample
items, the auditor may need to expand the sample or perform additional testing to determine if the
misstatement is an isolated incident or if it is indicative of a larger issue.

Once the testing is complete, the auditor can use the results of the sample to project the total
misstatement in the population of accounts receivable. The auditor can calculate the upper and
lower bounds of misstatement based on the results of the sample and use this information to
evaluate the overall financial statement risk.

How to evaluate the sample results, example

When evaluating the sample results in substantive tests of details, the auditor should consider the
following steps:

1. Compare the recorded amounts to the audited amounts: The auditor should compare the recorded
amounts in the accounting records to the audited amounts obtained from the sample. Any
differences between the two should be investigated further.
2. Project the sample results to the population: The auditor should project the sample results to the
entire population. This involves multiplying the sample results by an appropriate factor to estimate
the total misstatement in the population.
3. Determine if the projected misstatement is material: The auditor should compare the projected
misstatement to the tolerable misstatement (previously determined in the planning stage). If the
projected misstatement is greater than the tolerable misstatement, the auditor should conclude that
there is a material misstatement in the population.
4. Investigate the cause of the misstatement: The auditor should investigate the cause of any
misstatement found during the sampling process. This may involve examining additional
documentation, interviewing personnel, or performing other audit procedures.
5. Consider the implications of any misstatement: The auditor should consider the implications of any
misstatement found during the sampling process. This may include adjusting the financial
statements, disclosing the misstatement in the footnotes to the financial statements, or modifying
the auditor's opinion.

Example: A retail company has a population of 10,000 inventory items. The auditor selects a sample
of 100 items and finds a total audited value of $50,000, compared to a recorded value of $55,000.
The auditor then calculates the projected misstatement by multiplying the sample misstatement
($5,000) by a factor of 100 to account for the entire population. The projected misstatement is
$500,000. The tolerable misstatement was previously determined to be $300,000. Since the projected
misstatement is greater than the tolerable misstatement, the auditor concludes that there is a
material misstatement in the population. The auditor investigates the cause of the misstatement and
determines that the company had not properly accounted for inventory shrinkage. The auditor
adjusts the financial statements to reflect the correct value of inventory and discloses the
misstatement in the footnotes to the financial statements.

Evaluate sample results consider the misstatement to the population and sampling risk, example
Sure, here's an example:

An auditor is testing the accounts receivable balance of a company using a stratified random
sampling method. The population consists of 10,000 customer accounts, and the auditor has decided
to sample 100 accounts. The tolerable misstatement has been set at $50,000, and the auditor has set
the risk of incorrect acceptance at 5%.

The auditor performs the sampling plan and calculates a total misstatement of $60,000. To evaluate
the sample results, the auditor needs to consider the misstatement to the population and the
sampling risk.

To determine the misstatement to the population, the auditor will need to use an estimation formula.
One commonly used formula is:

Population estimate = (Sample misstatement / Sample size) x (Population size / Population sample
size)

Using the data from the example, the population estimate would be:

(60,000 / 100) x (10,000 / 100) = $60,000

This means that the auditor estimates there is a $60,000 misstatement in the accounts receivable
population based on the sample results.

To determine the sampling risk, the auditor will need to compare the allowance for sampling risk to
the actual risk of incorrect acceptance. The allowance for sampling risk is calculated using statistical
tables or software based on the sample size, population size, and risk of incorrect acceptance. Let's
assume that the allowance for sampling risk for this sample is 3%.

If the actual risk of incorrect acceptance is less than or equal to the allowance for sampling risk, the
auditor can conclude that the sample results support the conclusion that the accounts receivable
balance is fairly stated. If the actual risk of incorrect acceptance is greater than the allowance for
sampling risk, the auditor may need to perform additional procedures or expand the sample size.

In this example, the actual risk of incorrect acceptance would be calculated as:

(60,000 / 1,000,000) x 100 = 6%

Since the actual risk of incorrect acceptance is greater than the allowance for sampling risk (6% >
3%), the auditor may need to perform additional procedures or expand the sample size to reduce the
risk of incorrect acceptance.

Evaluate sample results consider the qualitative aspects of misstatement and reaching an overall
conclusion, example
Sure, here's an example of how to evaluate sample results considering the qualitative aspects of
misstatement and reaching an overall conclusion:

Let's say an auditor is conducting a substantive test of details on accounts receivable for a company,
with a population of 10,000 customer accounts. The auditor selects a sample of 100 customer
accounts using systematic sampling and performs various audit procedures to confirm the accuracy
of the account balances.

After performing the audit procedures, the auditor identifies five customer accounts with
misstatements, which total $10,000 in the sample. The auditor then evaluates the qualitative aspects
of the misstatements to determine their potential impact on the overall population and reach an
overall conclusion.

For example, the auditor might find that two of the misstatements are immaterial, as they are
relatively small and do not have a significant impact on the financial statements. However, three of
the misstatements are material, as they represent a significant portion of the account balances and
would have a material impact on the financial statements if extrapolated to the population.

The auditor might also consider the nature of the misstatements, such as whether they are the result
of errors or fraud, and the potential impact on other areas of the financial statements.
 Based on this evaluation, the auditor might determine that the overall population is likely to be
materially misstated, and may need to perform additional audit procedures or adjust the financial
statements accordingly.

Overall, the evaluation of sample results should take into account both quantitative and qualitative
factors to determine the potential impact on the population and the overall conclusion regarding the
accuracy of the financial statements.

Procedure of documenting the sampling process

Documenting the sampling process is an important part of the audit process. Here are the general
steps to document the sampling process:

1. Document the sampling method: Describe the sampling method used, including any specific
software or tools used to generate the sample.
2. Document the sample size: Record the sample size used and how it was determined.
3. Document the population: Describe the population from which the sample was drawn, including any
exclusions or limitations.
4. Document the sampling unit: Define the sampling unit used, and describe how it was selected.
5. Document the sampling period: Record the period covered by the sample, including any changes
made during the sampling process.
6. Document the results: Record the results of the sample, including any misstatements detected and
their significance.
7. Document any limitations: Describe any limitations or concerns with the sampling process, including
any issues encountered during the sample selection or evaluation.
8. Document any follow-up actions: Record any actions taken as a result of the sample, including any
adjustments made to the audit plan or procedures.

Example:

1. Sampling method: Random sampling was used to select items for testing.
2. Sample size: The sample size was determined to be 50 items based on a 5% acceptable level of risk
and a tolerable misstatement of $10,000.
3. Population: The population consisted of all accounts receivable balances as of December 31, 2022,
with the exception of accounts with balances less than $1,000.
4. Sampling unit: The sampling unit was individual customer balances, selected using a random number
generator.
5. Sampling period: The sampling period covered the entire fiscal year ended December 31, 2022.
6. Results: Of the 50 items tested, 3 misstatements were detected, with a total value of $25,000. Based
on the sample results, the projected misstatement to the population is estimated to be $250,000.
7. Limitations: Due to time constraints, the sample was limited to a size of 50 items. Additionally, some
customers were excluded from the sample due to their small account balances.
8. Follow-up actions: Based on the sample results, additional testing was performed on high-risk
accounts to further evaluate the extent of misstatements in the population.