LECTURE_8_Module_9_Sampling_S2_2008

Decisionrules 1 2

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Unformatted text preview: ied in order from largest to smallest with the largest error being error one Precision Gap Widening Precision Gap Widening Error Number Projected Error Incremental Precision Change ­ 1 Gap Widening 1 7,538 0.58 4,372 4. Calculate Upper Error Limit 4. Calculate Upper Error Limit UEL = BP + PE + PGW BP = $ 17,413 PE = $ 20,538 PGW = $ 4,372 UEL = $17,413 + $20,538 + $4,372 UEL = $ 42,323 5.Decision Rules (PPS Sampling) 5.Decision Rules ( 1. 2. Compare calculated Upper Error Limit with the Tolerable Error If UEL > TE then it is likely that the account balance is materially misstated – the account balance is not value (fairly) stated If UEL < TE then no likely material misstatement in the account balance – the account balance is fairly (value) stated 5. Decision Rules (PPS Sampling) 5. Decision Rules Example $ 42,323 < $70,000 therefore the accounts receivable balance is fairly stated The auditor can be 90% confident that no material misstatement exists in this account balance There is only a 10% chance that accounts receivables balance is materially misstated (risk of incorrect acceptance) Non-statistical Sampling Techniques xWhy use non-statistical sampling? Low cost Straightforward xUsing informal non-statistical sampling approaches can be: Inconsistent Cause incorrect evaluation of sampling Summary 1. The Usefulness of Sampling 2. The Risks associated with Sampling 3. Basic concepts of Audit Sampling 4. Attribute Sampling for Tests of Control (compliance testing) 5. PPS Sampling for Substantive Tests You will only be given tables in the examination; therefore you must memorise the appropriate formulae & procedures....
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