Becker Auditing – 2008 Edition
Chapter 5
1
Audit Sampling:
TIP PIE ACDO
b
the risk of reaching the wrong conclusion based on the sample
Evidence: Auditor must obtain sufficient appropriate audit evidence.
Rule 1: Central limit theorem: Assume that population being sampled is a normal distribution = a bellshaped curve
Rule 2: For mathematical validity, the samples have to be unrestricted and randomly selected. Every item in population must have an equal
chance of being selected. No bias and no substitution. This is the only area where CPA does not use judgment.
Rule 3: If sample is large and randomly selected, it will be representative of the population.
Rule 4: Standard deviation is a measure of variability. Variability = Uncertainty = Larger Sample Size
Sampling risk
: The probability that the sample is wrong
Methods can be either statistical or nonstatistical and both require professional judgment.
Statistical Sampling: auditors specify the risk they are willing to accept and calculate the sample size. Evaluating quantitatively.
Nonstatistical Sampling: sample size is not determined mathematically, instead auditor’s judgment is used for sample size. Evaluated
judgmentally.
GAAS – Approves both, the statistical and nonstatistical approach.
Sufficiency depends on size of sample. Size of sample depends on objectives and design of the sample.
Two types of Sampling:
1.
Attribute Sampling
b
Testing for specific characteristics (seeking errors)
b
Test of Controls (occurrence) (yes/no questions)
2.
Variable Sampling
b
Estimating the dollar value of the population
b
Test of Details and/or Substantive Tests
Auditor still needs to use professional judgment regardless of the type of sampling used. Use judgement for:
•
Define the population and sampling unit
•
Select the appropriate sampling method
•
Evaluate the appropriateness of audit evidence
•
Evaluate the nature of deviations or errors
•
Consider sampling risk
•
Evaluate results obtained from sample and project those results of population
***Statistical sampling does NOT eliminate the need for auditing judgment!
Advantages of Statistical Sampling – allows auditor to:
•
Measure the sufficiency of audit evidence obtained
•
Provide an objective basis for quantitatively evaluating sample results
•
Design an efficient sample
•
Quantify sampling risk so as to limit risk to an acceptable level
Rule 2
b
Random sample selection should be used. It gives all population an equal chance to be included in sample
Audit Risk: Risk of giving the wrong opinion. Includes Uncertainties due to sampling and uncertainties due to nonsampling factors
Sampling Risk in Substantive Testing
b
Variables Sampling:
1.
Beta Risk: Risk of Incorrect Acceptance. Sample results say that account balance is good, when in fact it is misstated. Auditor’s
Concern! Effectiveness Lost!
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 Spring '10
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