2 views

Uploaded by zakskt1

Audit F8

- Untitled
- Audit Sampling
- Anish_Ramteke_qmr
- SSC Syllabus
- An Assessment of the Capital
- Sip
- US Department of Justice Court Proceedings - 0917207 hinkins
- DataCollection
- Guidance Sampling Method En
- NY State Comptroller's Report on Student Vaccinations
- Introduction to Bio Statistics
- Table of Contents ED 200
- Work Study
- 1060 Coleccion y Preservacion de Las Muestras
- Doc
- Standalone Financial Results, Limited Review Report for December 31, 2016 [Result]
- CA Ipcc Nov 2017
- an analysis on consumer perception towards brand extension
- Branches of Accounting
- Hard Bindingrr

You are on page 1of 16

OVERVIEW

Objective

To identify and describe audit sampling and other selective testing procedures.

GATHERING

AUDIT EVIDENCE

Selection

ALL ITEMS

(100%)

Basic principles

methods

SPECIFIC ITEMS

Judgmental selection

AUDIT

SAMPLING

Definitions

Application

DESIGN

Basic principle

Sampling plan

Sample size

SELECTION

STATISTICAL

v NONSTATISTICAL

Statistical

Non-statistical

TESTING

Basic principle

Error projection

Evaluation

Basic principle

Common methods

Other methods

Essential procedure

SAMPLE

RESULTS

1901

1.1

Basic principles

1.1.1

Selection methods

1.1.2

selecting specific items

audit sampling.

Risk considerations

sampling and non-sampling risk.

Example 1

Suggest circumstances in which a 100% check of a class of transactions or

account balances check may be necessary.

Solution

1902

Example 2

Suggest reasons why it is unnecessary for an auditor to carry out a complete

check of all the transactions and balances of a business.

Solution

3.1

Judgmental selection

3.1.1

Factors to consider

Knowledge of business

3.1.2

Specific items

3.1.3

Main advantage

gathering audit evidence.

3.1.4

Main disadvantage

cannot validly project results to

population.

1903

4.1

Definitions

Audit sampling applying procedures to less than 100% of items . . . such that all

sampling units have a chance of selection . . . in order to form a conclusion concerning

the population.

Error (in Audit sampling) either a control deviations (in tests of control) or a

misstatement (in a substantive procedure).

Anomalous error an error that arises from an isolated event that has not recurred other

than on specifically identifiable occasions and is therefore not representative of errors in

the population.

Population the entire set of data from which the auditor wishes to sample . . . . For

example, all items in an account balance or a class of transactions. A population may be

divided into strata, or sub-populations, with each stratum being examined separately.

Sampling risk arises from the possibility that the auditors conclusion, based on a

sample, may be different from the conclusion that would be reached if the entire

population were subjected to the same audit procedure. Two types:

(a) the risk the audit will conclude that control risk is lower than it actually is (for a test

of control) or that a material error does not exist when in fact it does (for a

substantive test). This type of risk affects audit effectiveness and is more likely to

lead to an inappropriate audit opinion

(b) the risk the auditor will conclude that control risk is higher than it actually is (for a

test of control) or that a material error exists when in fact it does not (for a

substantive test). This type of risk affects audit efficiency as it would usually lead to

additional work to establish that initials conclusions were incorrect.

(e.g. 5% risk 95% confidence)

Non-sampling risk arises from factors that cause the auditor to reach an erroneous

conclusion for any reason not related to the size of the sample. For example, the auditor

might use inappropriate procedures or misinterpret evidence and thus fail to recognize

an error.

Sampling unit the individual items constituting a population, for example credit entries

on bank statements, sales invoices, trade receivable balances, or a monetary unit (e.g.

$1).

Statistical sampling any approach to sampling that has the following characteristics

(a) random selection of a sample; and

(b) use of probability theory to evaluate sample results, including measurement of

sampling risk.

1904

A sampling approach that does not have characteristics (a) and (b) is considered nonstatistical sampling.

a group of sampling units, which have similar characteristics (often monetary value).

Tolerable error (or deviation rate) the maximum error in the population that the auditor

is willing to accept (and still conclude that the result from the sample has achieved the

audit objective).

(which is less than overall materiality) or a percentage of population value.

For tests of control, precision is the maximum rate of failure of an internal control

that can be accepted in order to place reliance on it (and is therefore likely to be

small).

4.2

Application

Audit sampling can be applied using either non-statistical or statistical sampling

methods (see later in this Session). Stages in the sampling process include:

sample design

sample selection

performing audit procedures (testing)

error evaluation.

DESIGN

5.1

Basic principle

5.2

Attributes of the population.

Sampling plan

In practice a Sampling plan may be drawn up to cover

audit objectives

population and sampling unit (or attribute)

definition of an error (or deviation)

sample size

method(s) of sample selection.

1905

Matters to consider

Specific audit

objectives

Note 1

Population and

sampling unit and

use of stratification

Appropriate

and complete

Note 2

Sampling

unit

Note 3

Sample size

Stratification

(into sub-popns)

Note 4

Considerations

Sampling risk

(acceptably

low?)

Tolerable error

(= maximum

error/deviation rate

willing to accept)

Expected error

Notes

(2) Must be appropriate (may be a reciprocal population) and complete.

(3) An item number n (e.g. GRN)

(4) Involves dividing a population into subgroups (strata) to create relatively

homogenous groups in which variations in characteristics are likely to be small.

5.3

Sample size

For each of the following factors, decide whether the effect on sample size is an

increase, decrease or no effect:

1906

Solution

Effect on Sample Size

(1)

control systems

(2)

(3)

(4)

(5)

For each of the following factors, decide whether the effect on sample size is an

increase, decrease or no effect:

Solution

Effect on Sample Size

(1)

(2)

(3)

assertion

(4)

(5)

(6)

(7)

(8)

1907

SELECTION

6.1

Basic principle

Items should be selected in such a way that all sampling units have a chance of selection.

6.2

number generator.

Systematic (also called interval) selection uses a constant interval between items

selected (with a random start). Value-weighted selection is a method which uses

monetary unit values, rather than the items, as the sampling population.

CAUTION: The sampling units must not be structured in such a way that the sampling

interval corresponds with a pattern in the population.

alternative (to random methods) provided that conscious bias and predictability are

avoided.

6.3

Other methods

Block sampling (e.g. all items on a particular page) is not generally appropriate because

populations may be structured so that items in a sequence have similar characteristics

to each other but different characteristics to items elsewhere in the population.

TESTING

7.1

Essential procedure

Audit procedures appropriate to the test objective should be performed on each item

selected.

If an inappropriate item is selected (e.g. a document which has been made void) an

appropriately chosen replacement must be tested instead.

If the planned procedure cannot otherwise be performed (e.g. if a customer does not

reply to a direct confirmation request) a suitable alternative should be performed (e.g.

examination of after-date cash receipts).

1908

SAMPLE RESULTS

8.1

Basic principles

consider the nature and cause of any identified errors; and

their potential effect on:

other audit areas

relevant characteristic of the population.

ISOLATED

8.2

Obtain corroborative

evidence of anomalous

error

COMMON FEATURE

Identify sub-population

sub-stratum.

Error projection

The effect of projected error (on test objective and other audit areas) should be

considered.

Compare:

vs

Tolerable error.

Note that, for tests of control no projection is necessary (i.e. sample error rate represents

population error rate). (See Illustration 2 below.)

1909

Illustration 1

$

800,000

274,330

4,311

40,000 (5% of population)

Sample value

Errors (e.g. overpricing of invoices)

Tolerable error

Error in sample

Population value

800 ,000

= $12,572

= 4,311

274 ,330

Sample value

Conclusion: Trade receivables are not materially overstated (as the potential

error is less than the tolerable error of $40,000).

8.3

Evaluation of results

If projected error plus uncorrected anomalous error exceeds tolerable error, reassess

sampling risk.

8.3.1

Tests of control

assessed, modify planned

procedures e.g.

extend substantive

procedures.

1910

8.3.2

Substantive procedures

most likely error exceeds

tolerable error

for identified errors

re-evaluate unadjusted

errors.

Summary of deviations:

No. of despatch notes not found

No. of despatch notes without invoices

* include authorised cancellations

1

4*

(3)

DN ref.

(13,685)

(17,345)

___

Actual deviations

2

___

Deviation rate:

2

= 0.016

125

If the tolerable error is 1% (say) the sample size could be extended (to at least

200). If no further errors were found the deviation rate would be acceptable.

9.1

Statistical sampling

Involves

probability theory to

measure the sampling risk.

to be drawn from sample evidence. Most firms draw up complex plans which can be

operated by staff without statistical training.

1911

2 Main types

9.1.1

ATTRIBUTE SAMPLING

9.1.2

VARIABLES SAMPLING

property (attribute) or they

do not

value within a continuous

range

of events not monetary

amounts

on monetary values

estimated by extrapolation.

controls.

Example 5

Suggest relative advantages/disadvantages of statistical sampling.

Solution

Advantages

Disadvantages

9.2

Non-statistical sampling

Any approach which does not fulfil ALL the conditions set out above in the definition of

statistical sampling.

Includes not only non-random selection but evaluating errors on a judgement basis.

1912

Example 6

Suggest the relative advantages/disadvantages of non-statistical sampling.

Solution

Advantages

Disadvantages

FOCUS

You should now be able to:

identify and discuss the differences between statistical and non-statistical sampling;

discuss and provide relevant examples of the application of the basic principles of

statistical sampling and other selective testing procedures;

testing is required.

1913

EXAMPLE SOLUTION

Solution 1 Why 100%

When the repetitive nature of a CIS operation makes 100% examination cost-effective

Factor

Sample

size

Explanation

(1)

Reliance on

accounting and

internal control

systems (i.e. CR)

Increase

require larger sample sizes for tests of control

(2)

Tolerable error

Decrease

error rate rather than 1%, the amount of testing

(and hence sample size) is reduced

(3)

Expected error

Increase

they are suggested by prior period or other

findings) more work (i.e. greater sample size) is

required. Note that if error rates are expected to be

high, CR would be 100% no tests of control.

(4)

Confidence (i.e.

Risk)

Increase

larger sample sizes

1914

Factor

(5)

Population

Sample

size

Explanation

Negligible

effect on the sample size (e.g. a sample size may

be 60 regardless of whether the population

contains 1,600 items, 16,000 items or 160,000

items). For small populations, evidence is

usually gathered by selective testing procedures

other than audit sampling.

Factor

Sample

size

Explanation

(1)

IR

Increase

must be rendered lower by doing more

substantive work (i.e. greater sample sizes).

(2)

CR

Increase

controls) more evidence must be obtained from

substantive procedures (to render DR lower)

(3)

Other

substantive

procedures

Decrease

procedures, less assurance is required from tests

of detail.

(4)

Confidence

Increase

As for Solution 3

(5)

Tolerable

error

Decrease

As for Solution 3

(6)

Expected error

Increase

As for Solution 3

(7)

Stratification

Decrease

will usually be less than that of a single sample

drawn from the whole population

(8)

Population

Negligible

monetary value of a population may increase

sample size unless materiality is increased

proportionately.

1915

Advantages

Disadvantages

planning audit of a population

Expense of implementation

determining cumulative monetary

amounts)

Staff training

is required to set objectives and evaluate

results).

error evaluation cannot be statistically

analysed

Advantages

Disadvantages

understood and refined by experience

satisfy stated objectives

quicker/more cost effective

CAATs used

required

large

be unavoidable (e.g. if using

haphazard selection)

1916

- UntitledUploaded byeurolex
- Audit SamplingUploaded byNakajima Sayuri
- Anish_Ramteke_qmrUploaded bybinzidd007
- SSC SyllabusUploaded bysidhdharajsinh
- An Assessment of the CapitalUploaded byrandy nile
- SipUploaded bySanjiv Prasad
- US Department of Justice Court Proceedings - 0917207 hinkinsUploaded bylegalmatters
- DataCollectionUploaded byAmimul Ihsan
- Guidance Sampling Method EnUploaded byAnonymous 9BJNdyJO1D
- NY State Comptroller's Report on Student VaccinationsUploaded byDaily Freeman
- Introduction to Bio StatisticsUploaded byWaseem Ahmed
- Table of Contents ED 200Uploaded byRiza De Asir Bulocbuloc
- Work StudyUploaded byManjunath Nadarajan
- 1060 Coleccion y Preservacion de Las MuestrasUploaded byCristian Andres Garcia Corredor
- DocUploaded byaxtract
- Standalone Financial Results, Limited Review Report for December 31, 2016 [Result]Uploaded byShyam Sunder
- CA Ipcc Nov 2017Uploaded byPrakash Puniya
- an analysis on consumer perception towards brand extensionUploaded bySaviral Choudhary
- Branches of AccountingUploaded byangel mae
- Hard BindingrrUploaded byJai Gupta
- Financial Results & Limited Review for June 30, 2015 (Standalone) [Company Update]Uploaded byShyam Sunder
- rch 33333Uploaded byramvermaa
- Subsidiary Ledger Management and Internal ControlsUploaded byLorraine Amihan
- Acceptance SamplingUploaded byUtkarsh Mittal
- Audit Sektor PublikUploaded byAlbert Yunanto
- 5. Auditor Industry Expertise Improve Audit Quality _JAKUploaded byAgus Sugiyono
- Internet MarketingUploaded bymajid
- Botanal.pdfUploaded byRemzi Zarate
- Internal Audit Report SampleUploaded byAvishek Agarwal
- 5Uploaded byRohan Gupta

- 2014 Corporate Law Learning GuideUploaded byTony Zhou
- F8 AA (Int)Session18_j08Uploaded byzakskt1
- F8 AA (Int)Session20_j08.pdfUploaded byTareq Chowdhury
- F8 AA (Int)Session40_j08Uploaded byzakskt1
- F8 AA (Int)Session41Index_j08Uploaded byzakskt1
- F8 AA (Int)Session09_j08Uploaded byTareq Chowdhury
- BAO3309 2015SAMPLEBv2Uploaded byzakskt1
- The Duty to Act Bina Fide is the Most Important Duty Which Puts a Company Directors in the Responsible Position and Must Not Forget to Comply With Duties Destowed on Them in Any CircumstanceUploaded byzakskt1
- The Duty to Act Bina Fide is the Most Important Duty Which Puts a Company Directors in the Responsible Position and Must Not Forget to Comply With Duties Destowed on Them in Any CircumstanceUploaded byzakskt1
- F8 AA (Int)Session37_j08.pdfUploaded byTareq Chowdhury
- f9_2008_dec_aUploaded bypkv12
- F8 AA (Int)Session26_j08.pdfUploaded byTareq Chowdhury
- FraudUploaded byforevapure_bar88162
- A Risk-based Approach to AuditingUploaded by2vince8181
- Ethically SpeakingUploaded byសារុន កែវវរលក្ខណ៍
- sa_dec06_richardson0107.pdfUploaded byzakskt1
- Book Manual Getting Started Guide for Peachtree Complete Accounting 7 0Uploaded byzakskt1
- The Role of Internal Audit in Risk ManagementUploaded byhaltonfer123
- sa_feb07_F8P7.pdfUploaded byzakskt1
- Lewin 0307Uploaded byzakskt1
- RatiosUploaded byzakskt1
- Penguin - Test Your Professional English - AccountingUploaded byzakskt1
- Sa May08 Pine1Uploaded byzakskt1
- Audit Risk in a Brave New WorldUploaded by0730118008

- Auditing as a Whole in TheoryUploaded bymuhammad saqib jamil
- AU1 External Audit - Module 6Uploaded byumgilkin
- All Subj- Board Exam-picpa EeUploaded byMJ Mendoza Yacon
- Auditing TheoryUploaded byLaarni Aragon
- "Sampling" for Internal Audit, ICFR Compliance TestingUploaded byTransformer781
- Ch09 - Statistical Sampling for Testing Control ProceduresUploaded byrain06021992
- Standards on AuditingUploaded byB GANAPATHY
- ch11 Audit Sampling ConceptsUploaded bySamantha Islam
- Audit Individual AssignmentUploaded bytak222
- Chapter 15Uploaded byJerrica Rama
- Audit and Assurance RTP CAP-II June 2016Uploaded bycasarokar
- Audit sampling.pptUploaded bysime
- Aud TheoryUploaded byIm In Trouble
- All Subjects PicpaUploaded byMJ Mendoza Yacon
- Wiley Auditing Reviewer MockboardUploaded byAmir Macarongon
- PA SamplingUploaded byusmanca
- Ch1 part 2 Audit Sampling for tests of details of balance.pptxUploaded byመስቀል ኃይላችን ነው
- ICAI SIA - Notes and SummaryUploaded byca.yogeshjoshi1603
- MF0013 AnswerUploaded byAshutosh Rachna Tewari
- Variable SamplingUploaded byJonathan Vidar
- Monograph 2Uploaded byShane Callahan
- Audit Programme (1)Uploaded byPrathyusha Korukuri
- ACCOUNTING 12-07 - Audit-Assurance-Ethics-and-Governance (1).docxUploaded byNico evans
- Chapter 8Uploaded byMariela Liganad
- AT-FINALSUploaded byJester Lumpay
- At 502questionsUploaded byJosephkevin Yap
- Advance Audit Notes - CopyUploaded byZati Ty
- Audit samplingUploaded byaraceli_wasawas
- ch7Uploaded byMendoza Klarise
- At Chapter 11Uploaded byJossie Ejercito