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Compare upper error deviation limit against the

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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 Probability-Proportional to Size (PPS) Sampling for Substantive Testing x Also called Dollar-Unit 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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