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Ch17 - Chapter 17 Audit Sampling for Tests of Details of...

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Chapter 17 Audit Sampling for Tests of Details of Balances Key objectives: 1. Understand the differences between sampling for tests of transactions and sampling for tests of details of balances. 2. Apply non-statistical sampling to tests of details of balances. Be able to compute sample sizes and project errors using non-statistical sampling. Know the actions available to the auditor when projected error exceeds tolerable misstatement. 1. Introduction Projecting errors to the population was previously discussed in Ch. 9. The objective is to estimate the potential amount of misstatement in year-end balances. 2. Evidence Decisions - As usual, we can start with our four evidence decisions. A. Which procedures - This issue is easy. The procedure for year-end A/R to which sampling applies is confirmation (which primarily satisfies the existence and accuracy (valuation) objectives). Consult the test of details of balances audit program in Table 16-5 on p. 541. Do you see any other TODB for A/R for which sampling is likely to apply? Note that in other areas (particularly inventory), sampling often applies to multiple audit procedures. B. Sample size - Based on auditor judgment , considering risk model, results of TOT and analytical procedures. Auditor judgment is quantified in Monetary Unit Sampling (MUS) and other statistical methods, but the inputs still involve considerable judgment. 142
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C. Which items - Also based on auditor judgment. As discussed in Chapter 16, the emphasis is on large amounts and old amounts. We will be more specific as to how this is accomplished for statistical and nonstatistical tests. D. When - As discussed in Ch. 16, confirmations are often sent 1-3 months prior to year-end to facilitate timely completion of the audit. E. Evaluation of Results 1. Identify errors - need to separate true errors from valid timing differences (see Prob. 16-31). 2. Project errors to population (including consideration of sampling risk). 3. Evaluate acceptability of population (decision options if the population is not acceptable are discussed on p. 143-144 of the notes). Discussion of Bill DeBurger Case 3. Sample Size and Selection A. Sample size - The key factors affecting sample size are: Population size (note that population size generally has no effect in transaction sampling).
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