2011 McGraw-Hill/Irwin
Copyright by The McGraw-Hill Companies, Inc. All rights reserved.
Module F Attributes Sampling
Learning Objectives
1.
2.
3.
4.
5.
6.
7.
Identify the objectives of attributes sampling, define deviation
conditions, and define the population for an attributes sampling
application.
Understand how various factors influence the size of an attributes
sample.
Determine the sample size for an attributes sampling application.
Identify various methods of selecting an attributes sample.
Evaluate the results of an attributes sampling application by
determining the upper limit rate of deviation (ULRD).
Define sequential sampling and discovery sampling and identify
when these types of sampling applications would be used.
Understand how to apply nonstatistical sampling to attributes
sampling.
MODF-2
Attributes Sampling
Used to estimate the extent to which a
characteristic (attribute) exists within a
population
Used in tests of controls
Estimate the rate at which internal control
policies or procedures are not functioning as
intended (deviation conditions)
Compare rate to some allowable rate (tolerable
rate of deviation)
MODF-3
Major Steps in attributes
Sampling: Planning
1. Determine the objective of sampling
Identify key controls that the auditor intends to
rely upon
1. Define deviation conditions
Instance in which control is not functioning as
intended
1. Define the population
Should reflect all potential applications of the
control during the period being examined
MODF-4
Major Steps in attributes
Sampling: Performing
4. Determine sample size
Sampling risk (Risk of overreliance)
Expected rate of deviation
Tolerable rate of deviation
Population size (not applicable in most instances)
5. Select sample items
For statistical sampling, use unrestricted random selection or
systematic random selection
Haphazard selection or block selection are not appropriate for
statistical sampling
5. Measure sample items
Perform appropriate test of controls
Calculate sample rate of deviation = No. deviations sample size
MODF-5
Sampling Risks Associated with Attributes
Sampling
Factors Affecting Sample Size
MODF-6
Sample Sizes for Small
Populations
MODF-7
How to Determine Sample
Size
Select AICPA Sample Size table corresponding to desired risk of overreliance
Identify row related to appropriate expected population deviation rate (EPDR)
Identify column related to appropriate tolerable rate of deviation (TRD)
Determine sample size at junction of row for EPDR and column for TRD
Parameters
Risk of overreliance = 5%
Expected population deviation rate= 2%
Tolerable rate of deviation = 7%
Sample size = 88
MODF-8
Major Steps in attributes
Sampling: Evaluating
7. Evaluate sample results
Problem with sample rate of deviation is that it
may result from a nonrepresentative sample
Need to adjust sample rate of deviation for to
control the risk of overreliance
Calculate an Upper Limit Rate of Deviation
(ULRD)
MODF-9
Upper Limit rate of deviation
(ULRD)
There is a (1 minus risk of overreliance) probability that
the true population rate of deviation is less than or equal to
the ULRD
There is a (risk of overreliance) probability that the true
population rate of deviation exceeds the ULRD
Example: ULRD = 6%, Risk of overreliance = 5%
95% probability
0%
5% probability
6%
MODF-10
How to Determine the ULRD
Select AICPA Sample Evaluation Table corresponding to desired risk of
overreliance
Identify row related to appropriate sample size
If cannot locate exactly, round down to next lowest sample size
Identify column related to number of deviations noted
Determine ULRD at junction of row for sample size and column for deviations
Parameters
Sample size = 50
Risk of overreliance = 5%
No. of deviations = 3
Sample rate of deviation
3 50 = 6%
ULRD = 14.8%
Sample rate of deviation =
6%
Allowance for Sampling
Risk = 8.8%
MODF-11
Making the Decision
If ULRD > Tolerable rate of deviation:
Conclude that internal control is not functioning
effectively
Options
Increase sample size in hopes of supporting planned
level of control risk
Increase level of control risk, leading to more
effective substantive procedures (lower detection
risk)
MODF-12
Making the Decision
If ULRD Tolerable rate of deviation
Conclude that the internal control is functioning
effectively
Options
Maintain planned level of control risk, leading to
planned effectiveness of substantive procedures
MODF-13
Sequential (Stop-or-Go
Sampling)
Select initial (smaller) sample and consider results
Decision
Rely on control; discontinue sampling
Cannot rely on control
Select additional items; make decision
Discontinue sampling
Advantage is that evidence may support reliance
on control with a relatively small sample size
Disadvantage is that auditor may continually
extend the sample, creating inefficiencies
MODF-14
Discovery Sampling
Used when deviations from control are
expected to be infrequent but very critical
Allows the auditor to
Determine the necessary sample size to find at
least one example of a deviation if such
deviations exist
Determine the probability that the rate of
occurrence of a deviation is less than a specific
(low) level
MODF-15
Nonstatistical attributes Sampling
Sample size based on judgment
Should be approximately the same as sizes for statistical sampling
Selection may be block or haphazard
Attempt to select a representative sample
Evaluating Nonstatistical Results
Calculate Sample rate of deviation
Estimate an Allowance for Sampling Error
Compare SRD to TRD
If SRD>TRD reject sample
If SRD<TRD
Compare SR to EPRD
IF SDR <EPRD Probably accept sample
Can use tables for guidelines
Remember, its auditor judgment!
MODF-16