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ch 9 outline - Outlines Chapter 9-1 AUDIT SAMPLING(Chapter...

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Outlines Chapter 9- 1 AUDIT SAMPLING (Chapter 9) 2009 1. Why a sample? Cost of auditing all items is too high 2. What are we doing when we sample? The textbook example (P346, Figure 9.10): We take a subset of all items in an overall population (225 out of 100,000 accounts receivable accounts). We attempt to generalize the results from the sample to the overall population involved. We then audit the sample items and attempt to determine whether the client's book value of $6,250,000 is reasonable. 3. Audit Sampling Techniques 2 major sampling techniques: 1. Attributes sampling—Estimating a deviation rate—primarily to assess control risk, by conducting tests of controls 2. Variables sampling—estimating dollar amounts or quantities—primarily to limit detection risk by conducting substantive procedures (detailed tests of balances). 4. Detailed audit sampling techniques Audit Sampling Attributes Sampling in Variables Sampling in Tests of Controls Substantive procedures Statistical Nonstatistical Statistical Nonstatistical “Regular” Discovery Sequential - Classical Probability-Proportional- to-Size Mean Difference Ratio
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Outlines Chapter 9- 2 5. Sampling Risk Sampling risk relates to the possibility that a properly drawn sample may not be representative of the underlying population. The auditor may thus form a different conclusion based on the sample than s/he would have based on an examination of the entire population. Test of controls risks: 1. Risk of assessing control risk too high 2. Risk of assessing control risk too low True State of Population Deviation Rate Deviation Rate Exceeds is less than Tolerable Rate Tolerable Rate Auditor's Estimate is that: Deviation Rate Correct Risk of Assessing Exceeds Decision Control Risk Too Tolerable Rate High Deviation Rate Risk of Assessing Correct is Less than Control Risk Too Decision Tolerable Rate Low Substantive Procedures Risks 1. Risk of incorrect rejection of a recorded account balance
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