132CHAPTER 9 - Audit Sampling CHAPTER Non-Statistical...

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Unformatted text preview: Audit Sampling CHAPTER Non-Statistical Sampling Sampling does NOT have to be statistically based. It can be based on the application of auditor judgment. Such a sample is called a "non-statistical" sample. non- statistical" EXAMPLE: Real estate company closes 10 large sales during the year. Each is "individually significant" and there is no other earnings activity. significant" Should we perform statistical or non-statistical sampling? nonNon-statistical: TEST `EM ALL NonRegardless of whether using statistical sampling or non-statistical nonsampling, need to DOCUMENT the determination of the sample as well as how selected. 9 Bob Anderson, UCSB Intro CHAPTER 9-1 & Chapter 9- Bob Anderson, UCSB Intro & Chapter 9-2 9- NOT WHAT YOU THOUGHT Fyi- "Random" is probably NOT what you think it is! Fyi- Random" If I give you a list of 100 items and you arbitrarily select 10 of them, is that a "random" sample from the 100 random" item population? NO What kind of sample is it? "Haphazard" Haphazard" Random samples are selected based on application of a statistical model. Generally a firm utilizes third-party or thirdproprietary software to perform this function because they are not hiring statisticians- they are hiring auditors! statisticiansBob Anderson, UCSB What is Audit Sampling? Applying a procedure to less than 100% of a population To estimate some characteristic of the population Qualitative Quantitative Intro & Chapter 9-3 9- Bob Anderson, UCSB Intro & Chapter 9-4 9- 1 What does the opinion say? Recall that the second paragraph is the "scope" scope" paragraph and tells what the auditor did. It says: ...An audit includes examining, on a test basis, basis, evidence supporting the amounts and disclosures in the financial statements... statements... Advantages of Statistical Sampling Design efficient samples Measure sufficiency of evidence Objectively evaluate sample results Bob Anderson, UCSB Intro & Chapter 9-5 9- Bob Anderson, UCSB Intro & Chapter 9-6 9- Selection of Random Sample Random number tables Random number generators Systematic selection Requirements of Audit Sampling Plans When planning the sample consider: The relationship of the sample to the relevant audit objective Materiality or the maximum tolerable misstatement or deviation rate rate Allowable sampling risk Characteristics of the population GENERALLY USE SOFTWARE Select sample items in such a manner that they can be expected to be to representative of the population Sample results should be projected to the population Items that cannot be audited should be treated as misstatements or deviations in evaluating the sample results Nature and cause of misstatements or deviations should be evaluated evaluated Bob Anderson, UCSB Intro & Chapter 9-7 9- Bob Anderson, UCSB Intro & Chapter 9-8 9- 2 SAMPLING FOR TESTS OF CONTROLS VS. SUBSTANTIVE TESTING We can use sampling to test: Compliance with identified controls (AKA Test of Operating Effectiveness or Effectiveness "TOE") TOE" Identifying a sample for substantive testing TOE DEVIATION: If the control you are looking for was not performed on an item, this means that the control is not operating effectively. Generally there is not a tolerable deviation when testing controls. If there is a there deviation: Consider expanding sample to test controls of more items Consider increasing assessed "Control Risk", thus resulting in increased Risk" substantive testing TOE SELECTIONS NOT a rule, but to give you some perspective on guidelines common out there: FREQUENCY OF APPLICATION OF CONTROL Recurring Daily Monthly Annually System SAMPLE SIZE 30 15 2 1 1 Intro & Chapter 9-10 9- SUBSTANTIVE TEST DEVIATION: If the sample comes back with some deviation, that might be acceptable, depending on what the "Tolerable Misstatement" is (generally the sampling software utilized to make the Misstatement" sample will indicate the "tolerable misstatement" simulteneous with misstatement" identifying the sample size). If in excess of tolerable misstatement: misstatement: Increase sample size and/ or Consider revised approach to testing objective Bob Anderson, UCSB Intro & Chapter 9-9 9- Bob Anderson, UCSB Audit Sampling for Tests of Controls Determine the objective of the test Define the attributes and deviation conditions Define the population to be sampled Choose an audit sampling technique Specify: The risk of assessing control risk too low The tolerable deviation rate Factors Affecting Sample Size Risk of incorrect rejection Risk of incorrect acceptance Tolerable misstatement Characteristics of the population SUBSTANTIVE TEST SAMPLES NEVER LESS THAN 20 ITEMS. Estimate the population deviation rate Determine the sample size Select the sample Test the sample items Evaluate the sample results Document the sampling procedure Bob Anderson, UCSB Intro & Chapter 9-11 9- Bob Anderson, UCSB Intro & Chapter 9-12 9- 3 ...
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