Define the population the period to be covered by the

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Define the population: the period to be covered by the test (the  period tested depends on the audit objectives); the sampling unit;  the completeness of population (pre-numbered document) Sampling unit: is the item identified in the population as the  basis for testing. It could be document, an authorized signature,  an entry in the computer system, or a line item on a document 3.  Determine the sample size, considering tolerable and expected  failure rates along with acceptable sampling risk 4. Determine an effective and efficient method of selecting the sample o Random numbers Is an efficient sample selection method o Systematic selection Systematic selection selects every nth item from a random  starting point Population is complete  There is not a systematic pattern in the population o Haphazard( )  selection Involves the arbitrary selection of sample items with no  conscious bias, but without using a random base. It is often  used in nonstatistical sampling application; such a sample  cannot be statistically evaluated  o Block sampling May not be representative 5. Select and audit the sample item 6. Evaluate the sample results
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Tools to gather audit evidence 15:19 o Quantitative evaluation: sample failure rate exceeds expected  failure rate, the auditor should determine whether or not the  projected maximum failure rate is likely to exceed the tolerable  rate o If the achieved upper limit exceeds the tolerate rate, the auditor  should Test a compensating control Adjusting the nature, timing and extent of substantive testing o Qualitative evaluation a. Was the misstatement intentional or unintentional; if the  control failure appear to be intentional, which might indicate  fraud b. Was the misstatement random or systematic; if the failures  are systematic, the auditor should be cautious in deciding to  isolate the problem and reducing substantive testing c. Did the misstatement have a direct dollar effect on the  account balance d. Was the misstatement of such magnitude that a material  dollar amount of errors could occur and not be deleted o Linkage to substantive testing: the results of controls are used to  determine whether the nature, timing and extend of substantive  testing should be modified 7. Document all phases of the sampling process o Sampling to test for account balance misstatements Steps involved in sampling for substantive tests of account balances a. Specify the audit objective of the test Sampling is used to audit account balances in two primary  ways: to determine the reasonableness of an account 
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