Module G

# Module G - Module G Variables Sampling USA Today has come...

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Module G Variables Sampling “USA Today has come out with a new survey-apparently three out of every four people make up 75% of the population.” – David Letterman

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Learning Objectives 1. Define variables sampling and understand when variables sampling is used in the audit examination. 2. Understand the basic process underlying dollar unit sampling (DUS) as well as when DUS sampling should be used. 3. Identify the factors affecting the size of a DUS sample and calculate the sample size for a DUS sampling application. MODG-2
Learning Objectives (Continued) 1. Evaluate the sample results for a DUS sample by calculating the projected misstatement, incremental allowance for sampling risk, and basic allowance for sampling risk. 2. Understand the basic process underlying classical variables sampling as well as the use of classical variables sampling in an audit examination. 3. Understand the basic process underlying nonstatistical sampling as well as the use of nonstatistical sampling in an audit examination. MODG-3

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Variables Sampling Used to estimate the amount (or value) of a population Substantive procedures Estimate the account balance or misstatement Compare account balance or misstatement to recorded amount or tolerable error Types of variables sampling approaches Dollar unit sampling (DUS) Classical variables sampling MODG-4
Dollar Unit Sampling (DUS) Defines the sampling unit as individual dollar in an account balance Auditor will select individual dollars for examination Auditor will verify entire “logical unit” containing the selected dollar Accounts receivable: Customer account Inventory: Inventory item MODG-5

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Advantages of DUS Sampling Results in smaller sample sizes Includes transactions or components reflecting larger dollar amounts Effective for overstatement errors Generally simpler to use than classical variables sampling MODG-6
Disadvantages of DUS Sampling Provides a conservative (higher) estimate of misstatement Not effective for understatement or omission errors Expanding a DUS sample is difficult if the initial conclusion is to reject account balance Requires special consideration for accounts with zero or negative balances MODG-7

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Major Steps in Variables Sampling MODG-8
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Module G - Module G Variables Sampling USA Today has come...

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