Unformatted text preview: nst the Tolerable Deviation Rate x Qualitative Evaluation
1. Each deviation should be analysed to
determine its Nature & Cause
2. Consider whether the deviation has a direct
effect on the financial statements
x May necessitate the revision of the planned
nature, timing & extent of substantive testing Use of Samples for Audit
Tests
xSelecting the sample
Random selection Systematic selection Haphazard selection xTesting the sample Use of Samples for Audit
Tests
xEvaluating the results
Qualitative aspects of errors or deviations
Projecting the error to the population − Tests of control
− Substantive tests ProbabilityProportional to Size (PPS)
Sampling for Substantive Testing
x Also called DollarUnit Sampling
x Focus is on estimation of dollar balances based on
sample
x Evaluate reasonableness of monetary values and
whether they are fairly stated
x Each dollar is a sampling unit and PPS sampling
tests whether it is correctly stated
x Sample error rates are then projected to the total
amount in the account balance (the population) to
provide an indication whether the account balance
is materially misstated Defining the Population &
Sampling Unit
x A sampling unit is the individual dollar
x The population is the number of dollars equal to
the total dollar amount of the population
x Each dollar is given an equal chance of being
selected
x Auditor does not examine individual dollars
x Dollar is used to ‘snag’ an account
x Snagged account is known as the ‘Logical
Sampling unit’
x The more dollars associated with a logical unit, the
greater the chance of being snagged PPS Practical Example PPS Practical Example Details Accounts receivable balance $ 1,500,000 Tolerable Error Confidence level required $ 70,000
90% Determine Sample Size Determine Sample Size n = (PV / TE) x RF Where n = Sample Size
PV = Population Value TE = Tolerable Error RF = Reliability Factor determined from table 9.1 (as for Attribute Sampling) Calculate Sample Size Calculate Sample Size From Example PV = $ 1,500,000 TE = $ 70,000 RF...
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 Two '08
 Jenifer
 upper error limit

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