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Chapter 17
Audit Sampling for
Tests of Details of Balances
UIstop
Review Questions
171
The most important difference between (a) tests of controls and
substantive tests of transactions and (b) tests of details of balances is in what the
auditor wants to measure. In tests of controls and substantive tests of
transactions, the primary concern is testing the effectiveness of internal controls
and the rate of monetary misstatements. When an auditor performs tests of
controls and substantive tests of transactions, the purpose is to determine if the
exception rate in the population is sufficiently low to justify reducing assessed
control risk to reduce substantive tests. When statistical sampling is used for
tests of controls and substantive tests of transactions, attributes sampling is ideal
because it measures the frequency of occurrence (exception rate). In tests of
details of balances, the concern is determining whether the monetary amount of
an account balance is materially misstated. Attributes sampling, therefore, is
seldom useful for tests of details of balances.
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Stratified sampling is a method of sampling in which all the elements in the
total population are divided into two or more subpopulations. Each subpopulation
is then independently sampled, tested and statistically measured in the same
way as variables. After the results of the individual parts have been computed,
they are combined into one overall population measurement. Stratified sampling
is important in auditing in situations where the misstatements are likely to be
either large or small.
In order for an auditor to obtain a stratified sample of 30 items from each
of three strata in the confirmation of accounts receivable, he or she must first
divide the population into three mutually exclusive strata. A random sample of 30
items is then selected independently for each stratum.
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The point estimate is an estimate of the total amount of misstatement in
the population as projected from the known misstatements found in the sample.
The projection is based on either the average misstatement in the sample times
the population size, or the net percent of misstatement in the sample times the
population book value.
The true value of misstatements in the population is the net sum of all
misstatements in the population and can only be determined by a 100% audit.
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The statement illustrates how the misuse of statistical estimation can
impair the use of an otherwise valuable audit tool. The auditor's mistake is that
he or she treats the point estimate as if it is the true population value, instead of
but one possible value in a statistical distribution. Rather than judge whether the
point estimate is material, the auditor should construct a statistical confidence
interval around the point estimate, and consider whether the interval indicates a
material misstatement. Among other factors, the interval will reflect appropriate
levels of risk and sample size.
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 Spring '10
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