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Unformatted text preview: Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances CHAPTER 9 AUDIT SAMPLING: AN APPLICATION TO SUBSTANTIVE TESTS OF ACCOUNT BALANCES Answers to Review Questions 9-1 The steps in a statistical sampling application for substantive testing include (by phases): Planning 1. Determine the test objectives. 2. Define the population characteristics: o Define the population. o Define the sampling unit. o Define a misstatement. 3. Determine sample size, using the following inputs: o Desired confidence level or risk of incorrect acceptance. o Tolerable misstatement. o Expected misstatement. o Population size. Performance 4. Select sample items. 5. Perform the audit procedures: o Understand and analyze any misstatements observed. Evaluation 6. Calculate the projected misstatement and the upper limit on misstatement. 7. Draw final conclusions. 9-2 When monetary-unit sampling (MUS) is used, the sampling unit is defined as an individual dollar (or monetary unit or other forms of currency). When classical variables sampling is used, the sampling unit is a customer account, an individual transaction, or a line item on a transaction. 9-3 The following table shows how the desired confidence level, tolerable misstatement, and expected misstatement are related to sample size: Factor Relationship to Sample Size Desired confidence level Direct Tolerable misstatement Inverse Expected misstatement Direct 9-1 Chapter 09 - Audit Sampling: An Application to Substantive Tests of Account Balances 9-4 The advantages and disadvantages of MUS are: Advantages : When the auditor expects no misstatements, MUS will normally result in a smaller sample size than classical variables sampling. The calculation of sample size and the evaluation of the sample results are not based on the variation (that is, the standard deviation) between items in the population. MUS, when applied using a probability-proportional-to-size sample selection procedure as outlined in the text, automatically results in a stratified sample because sampled items are selected in proportion to their monetary amount. Disadvantages : Selection of a zero or negative balance generally requires special design consideration. The general approach to MUS assumes that the audited amount of the sample item is not in error by more than 100 percent. When more than one or two misstatements are detected using a MUS approach, the sample results calculations may overstate the allowance for sampling risk. 9-5 Probability-proportional-to-size sample selection gives each individual dollar or monetary unit in the population an equal chance of being selected. Each selected dollar represents a group of dollars (referred to as the sampling interval). The sampling interval is determined by dividing the book value of the population by the sample size. The advantage of using this approach to selecting the sample is that while each dollar in the population has an equal chance of being selected, logical units (e.g., customer accounts) population has an equal chance of being selected, logical units (e....
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This document was uploaded on 04/23/2011.
- Spring '09