AUDITING THEORY

GROUP 2 – ATTRIBUTE SAMPLING PLAN

GROUP MEMBER: ASSIGN TASK

API, MICHELLE C. STEP 1
CALIP, ELLA DESEREE T. 2
DELOR, METHZ R. 3
PAULE, HEINE JOY B. 4
SAZON, JULIUS BRYAN B 5
 STEPS IN ATTRIBUTE SAMPLING PLAN
A. RISK OF ASSESSING CONTROL RISK TOO LOW
• There is an inverse relationship between the risk and the sample size. The higher the
acceptable risk, the smaller the sample size.
• Because the risk of assessing control risk too low relates to the effectiveness of the audit, it is
kept at a relatively low level by the auditor.

• B. TOLERABLE DEVIATION RATE (TOLERABLE ERROR)

• This is the maximum deviation rate that the auditor is willing to accept.
• The tolerable deviation rate is inversely related to the sample size. Therefore, a decrease in
the tolerable deviation rate will cause the sample size to increase.

• C. EXPECTED POPULATION DEVIATION RATE (EXPECTED ERROR)

• The rate of deviation from the prescribed control procedure the auditor expects to find in the
population.
• The expected deviation rate has a direct effect on the sample size; the larger the expected
population deviation rate, the larger would be the sample size.
Contributed by: Paule, Heine Joy B.
STEPS IN ATTRIBUTE SAMPLING PLAN

Sample size RISK OF TOLERABLE EXPECTED

ASSESSING DEVIATION POPULATION
CONTROL RISK RATE DEVIATION RATE
TOO LOW

Small
High High Low

Large
Low Low High

Contributed by: Paule, Heine Joy B.

 STEPS IN ATTRIBUTE SAMPLING PLAN
• The following procedures are performed:
A. Projecting the sample error to the population
B. Considering sampling risk
C. Considering qualitative information
D. Reaching an overall conclusion

• CLASSICAL VARIABLES SAMPLING TECHNIQUES

A. MEAN-PER-UNIT ESTIMATION – A classical variables sampling technique that projects the sample
average to the total population by multiplying the sample average by the number of items in the
population.
B. DIFFERENCE ESTIMATION – A classical variable sampling technique that uses the average
difference between audited amounts and individual recorded amounts to estimate the total audited
amount of the population and an allowance for sampling risk.
C. RATIO ESTIMATION – A classical variables sampling technique that uses the ratio of audited
amounts to recorded amounts in the sample to estimate the total amount of the population and an
allowance for sampling risk
Contributed by: Paule, Heine Joy B.
 STEPS IN ATTRIBUTE SAMPLING PLAN
• Conditions for using difference and ratio estimation:
1. Each population item must have a recorded book value
2. Total population book value must be known.
3. Expected differences between audited and recorded book values must not be too rare.

• PROBABILITY-PROPORTIONAL-TO-SIZE SAMPLING (PPS)

• PPS uses a peso as the sampling unit.
• PPS sampling gives each individual peso in the population an equal chance of
selection.
• PPS is only useful for TESTS OF OVERSTATEMENTS since the sample selection
method dictates that the larger the transaction or amount, the more likely that it will be
selected.
• PPS is inappropriate for testing liabilities because understatement is the primary audit
consideration.
Contributed by: Paule, Heine Joy B.
STEPS IN ATTRIBUTE SAMPLING PLAN

STEP 5 – DETERMINE THE METHOD OF SAMPLE SELECTION

The auditor should select items for the sample with the expectation that all sampling
units in the population have chance of selection.
PSA 530 has identified principal methods of selecting samples namely;
• Random number selection
• Systematic selection
• Block selection (or clustering sampling)
• Haphazard selection
• Stratification

Contributed by: Sazon, Julius Bryan B

 STEPS IN ATTRIBUTE SAMPLING PLAN
Random Number Selection
•Advantage of this selection technique is that it gives each item in the in the population an equal
opportunity to be selected.
•It is usually accomplished by generating random numbers from a random number table or
computer program and tracing them to associated documents or items in the populations
•It is appropriate for both statistical and nonstatistical sampling.

Systematic Selection
•The advantage of this type of selection is that it is easy to use. Furthermore, in systematic
selection, the population items do not have to be pre-numbered in order for the auditor to use this
technique.
•The sampling interval is computed by dividing the population size by the sample size.
•Although the starting point may be determined haphazardly, the sample is more likely to be truly
random if it is determined by use of a computerized random number generator or random number
tables.
•When using systematic selection, the auditor would need to determine that sampling units within
the population are not structured in such way that the sampling interval corresponds with a particular
pattern in the population.
Contributed by: Sazon, Julius Bryan B
STEPS IN ATTRIBUTE SAMPLING PLAN
Block Selection or Cluster Sampling
•It cannot commonly used in audit sampling because most populations are structured
such that items in sequence can be expected to have similar characteristics to each
other, but different characteristics from items elsewhere in the population.
•It involves selecting a block(s) of contiguous item from within the population.
•Although in some circumstances it may be an appropriate audit procedure to examine
a block of items, it would rarely be an appropriate sample selection technique when the
auditor intends to draw valid inferences about the entire population based on the sample.
Haphazard Selection
•Haphazard means not having an obvious order or plan
•The sample is selected without following an organized or structured technique.
•It is useful for non-statistical sampling because the auditor cannot measure the
probability of an item being selected when using this method

Contributed by: Sazon, Julius Bryan B .

STEPS IN ATTRIBUTE SAMPLING PLAN

Stratifications
•This involves subdividing a population or strata, i.e., a group of sampling units which
have similar characteristics (often monetary value)
•The strata must be explicitly defined so that each sampling unit can belong to only
one stratum.
•This method enables the auditor to direct his efforts towards the items he considers
would potentially contain the greater monetary error.

Contributed by: Sazon, Julius Bryan B

STEPS IN ATTRIBUTE SAMPLING PLAN
In selecting the sample and applying the appropriate audit procedures, the auditor may
encounter the following situations.
• Voided documents
 The auditor may occasionally select a voided or cancelled document in a
sample, if the document has been properly voided, such document should be
replaced by another sample item.
• Missing documents
 If the auditor encounters missing document and he is unable to determine
whether the control has been properly performed, such item should be treated
as a deviation for the purpose of evaluating sample results.

Contributed by: Sazon, Julius Bryan B