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Unformatted text preview: Chapter 09: Audit Sampling: Substantive Tests of Details CHAPTER 9 Audit Sampling: Substantive Tests of Details After studying this chapter, you should be able to: 1. Describe variables sampling and explain how it is used to gather evidence using substantive testing procedures. 2. Understand sampling risk and nonsampling risk for substantive testing. 3. Explain the difference between statistical and nonstatistical sampling in substantive testing. 4. Understand how the auditors use a sampling plan to conduct substantive tests of details. 5. Describe how the auditors use audit sampling to gather evidence related to material misstatements in account balances. 6. Explain how the auditors use audit sampling to gather evidence related to material misstatements in classes of transactions Chapter 9: Audit Sampling: Substantive Tests of Details Chapter Highlights This chapter is the second of two chapters that present the topic of audit sampling and this one focuses on substantive testing procedures. It begins with discussions describing audit sampling, sampling risk and the difference between statistical and nonstatistical sampling. The chapter then examines how sampling can be used to gather evidence regarding material misstatements in account balances and in classes of transactions. Once the definitions have been reviewed, the chapter introduces a 10-step Sampling Plan for Substantive Tests (Exhibit 9-2) which illustrates logical, easy-to-follow procedures to perform substantive tests of details. The chapter concludes with an example utilizing the 10-step Sampling Plan. Exhibit 9-5 provides the Confidence Factors for Monetary Unit Sampling (MUS) along with an example that can be used in a class discussion. Chapter Outline 1. Audit Sampling for Substantive Tests of Details (Slide #1… see companion slides) The use of sampling to test account balances and classes of transactions is often referred to as variables sampling. The evidence gathered from substantive testing is used to determine whether the account balances and classes of transactions in the financial statements are materially misstated and determines the type of audit report issued for the financial statements. 2. The Use of Variables Sampling in Substantive Testing (Slide #2) – Variables sampling is the application of an audit procedure (confirmation, vouching, tracing) to less than 100% of an account balance (for the balance sheet) or a class of transactions (for the income statement) to determine whether the recorded amount is materially misstated. – Sample-items selected for examination – Population-all items in the account balance or class of transactions – Random sample-each item in the population has an equal chance of being selected and ensures that the sample is representative of the population – The evidence from the sample is used to arrive at a conclusion about the population – Evidence obtained from substantive tests answers the question: (Slide #3) Is the account balance or class of transactions materially misstated?...
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This note was uploaded on 12/03/2011 for the course HIST 101 taught by Professor M during the Spring '11 term at NJIT.
- Spring '11