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Gnossis has about 4,000 employees, and internal audit has decided to perform an attributes test to
assess the internal controls covering human resources records.Through a review of the human
resources record‐keeping process, internal audit found some 30 different record‐keeping control
issues. Internal audit has combined all of these 30 record‐keeping issues as a single attribute, as a
single yes‐or‐no test.
An audit strategy is to test the Gnossis human resources records for separate attributes. A better
approach is to decide which are the most significant and to test only for those separate attributes.
Assume that internal audit has decided to test human resources records for the following five
attributes:
1. Pay grade and status on the automated system should be the same as in manual files.
2. Authorizations for withholdings should be signed and dated by employees.
3. Preemployment background checks should have been completed.
4. If there were no life insurance deductions, employee‐signed waivers should be recorded.
5. Pay increases are according to guidelines and are properly authorized
Internal audit would first discuss this approach with Gnossis management to obtain their consent. The
next step is to establish sampling parameters and develop a sample plan. The item of interest here
would be an employee payroll file, and internal audit would separately review employee files for each
of these five attributes. Internal audit’s next challenge is to select the 339 plus perhaps 40 extra
payroll files for audit inspection. The sample employees were selected from a printed list of
employees, a report 75 pages long and with about 55 items per page, using four‐character random
numbers. Although largely manual procedures were used here to select the sample, internal audit
could have made this selection using automated procedures as follows:
1. Use a random number program to generate 379 numbers for the 339‐count desired sample size,
along with 40 extras.
2. Output the selected random numbers to a fi le and sort them in ascending order.
3. Using desktop software, match the sequential random numbers with the record counts on the
employee master file.
4. Output the selected record data to a spreadsheet file
Once the statistical sample is selected, these attributes are tested by pulling the designated employee
personnel file. The internal auditor checks each employee record selected against each attribute and
then indicates on the worksheet whether the attribute is in compliance. After reviewing these
attributes for the 339 sample items, the fi nal step is just to tabulate the exceptions or error
rates.Because sample results show an extensive error rate for this one important attribute, the results
should be immediately disclosed to management without the need for further sampling.
Summary information on the results of these five attributes tests would be provided to management
in a formal audit report.Only minor or insignificant problems appeared for three of the fi ve attributes
tested, while for the other two, Attributes 1 and 3, signifi cant internal control problems were found.
In internal audit’s opinion, the internal control breakdown over these two attributes is sufficient to
suggest major problems within the human resources record‐keeping process. Based on these internal
audit recommendations, management has the responsibility to analyze the entire file to determine
the extent and frequency of these and other attribute errors throughout the system.
10.8 Attributes Sampling Advantages And Limitations
When there is a need to review a large number of items, attributes sampling procedures can provide a
statistically accurate assessment of a control feature or attribute. Attributes sampling is not useful for
determining the estimated correct value on an account such as an inventory book value, but is an
extremely useful tool for reviewing control procedures in a variety of operational areas. Some internal
auditors feel the technique has some impediments to its use, including:
1. Attributes sampling computations are complex.
2. Appropriate defi nitions of attributes may be difficult.
3. Attributes sample results may be subject to misinterpretation.
4. Imperfect data requires corrections.
Despite these problems, attributes sampling equips internal audit with a very powerful tool to assess
internal controls in a large population of data through the evaluation of a limited sample. The
technique is particularly appropriate when the initial, judgmental results of an internal control review
indicate problems in an area and when management disputes the preliminary results from audit’s
limited, judgmental sample as being “unrepresentative.” A follow‐up attributes sample will allow
internal audit to take another look at the data and come back making a stronger statement about the
status of internal controls surrounding the area in dispute.
An internal auditor can select a sample using a spreadsheet software package or even through a
manual calculation using a calculator.The purpose is simply to determine the monetary interval based
on the calculated sample size. Two key limitations of monetary unit sampling are : monetary unit
sampling is only useful for testing for the presence of overstatement and the selection method
described does not handle credit amounts correctly. The best solution here is to pull out all recorded
credit balances and treat them as a separate population to be evaluated. Despite these limitations,
monetary unit sampling is an effective way to evaluate the recorded balance in a large monetary
account.
The main disadvantage of monetary unit sampling is that the procedure does not adequately test for
financial statement understatements. Another problem is that a total book value must be known in
order to make interval calculations. The method cannot provide estimates of unknown population
values. Monetary unit sampling is a relatively new concept for internal auditors, there are fewer
training programs available compared to traditional methods such as attributes sampling.