Lecture Note
Audit Sampling
-
University:
California State University, Northridge -
Course:
ACCT 605 | Introduction to Audit and Attestation Academic year:
2024
-
Views:
323
Pages:
19
Author:
Derrick Hunt
Audit Sampling Definition: Audit
Sampling
Audit sampling is the
application of an audit
procedure to less than
100 percent of the items
within an account
balance or class of
transactions for the
purpose of evaluating
some characteristic of
the balance or class. Audit Risk (Error)
•Sampling Risk (Error)
•Type 1 Error (alpha risk;
risk of underreliance)
•Type 2 Error (beta risk;
risk of overreliance)
•Nonsampling Risk
(Error) Audit Sampling: Basic
Steps
1. Define objectives
2. Specify population
3. Identify characteristic of
interest
4. Determine sample size
5. Selection of sample
6. Evaluation of sample
results
7. Make audit decision Types of Audit
Sampling
•Statistical sampling
•Nonstatistical
(Judgmental) Sampling Distinguishing Features
of Statistical Sampling
Random or Systematic
selection
Mathematical
evaluation Representative
Selection Methods
For Statistical or
Nonstatistical Sampling:
• Random
– Regular
– Probability Proportional to
Size
• Systematic
– Regular
– Probability Proportional to
Size
• Stratified Random
For Nonstatistical Only:
• Haphazard Unacceptable
Selection Methods
Block selection
Judgmental
selection
(OK when not
sampling) Types of Sampling
Plans
Attribute
Sampling
(eg. Evaluation of Internal
Control System)
Variable
Sampling
(eg. Estimate Account
Balances) Determination of
Sample Size
MDR =
n =
R
n
R
TR Determination of
Sample Size
Factors affecting sample
size (Independent
variables)
• Population
• Confidence Level
• Tolerable Rate
• Precision Range
n =
(
N .SD .Z
PR
2
) Risk Factor Table
Number of
occurrences
0
1
2
3
4
5
6
7
8
9
10
Risk of assessing
control risk too low
5%
3.0
4.8
6.3
7.8
9.2
10.6
11.9
13.2
14.5
16.0
17.0
10 %
2.4
3.9
5.4
6.7
8.0
9.3
10.6
11.8
13.0
14.3
15.5 Determination of
Sample Size:
Reliability 90%
Expected
population
deviation
rate, % 2%
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
3.25
3.50
3.75
4.00
5.00
6.00
7.00
114(0)
194(1)
194(1)
265(2)
Tolerable Rate
3%
4%
5%
6%
7%
8%
9%
10%
15%
20%
76(0)
129(1)
129(1)
129(1)
176(2)
221(3)
57(0)
96(1)
96(1)
96(1)
96(1)
132(2)
132(2)
166(3)
198(4)
45(0)
77(1)
77(1)
77(1)
77(1)
77(1)
105(2)
105(2)
132(3)
132(3)
158(4)
209(6)
38(0)
64(1)
64(1)
64(1)
64(1)
64(1)
64(1)
88(2)
88(2)
88(2)
110(3)
132(4)
132(4)
153(5)
194(7)
32(0)
55(1)
55(1)
55(1)
55(1)
55(1)
55(1)
55(1)
75(2)
75(2)
75(2)
94(3)
94(3)
113(4)
113(4)
131(5)
149(6)
28(0)
48(1)
48(1)
48(1)
48(1)
48(1)
48(1)
48(1)
48(1)
65(2)
65(2)
65(2)
65(2)
82(3)
82(3)
98(4)
98(4)
160(8)
25(0)
42(1)
42(1)
42(1)
42(1)
42(1)
42(1)
42(1)
42(1)
42(1)
58(2)
58(2)
58(2)
58(2)
73(3)
73(3)
73(3)
115(6)
182(11)
22(0)
38(1)
38(1)
38(1)
38(1)
38(1)
38(1)
38(1)
38(1)
38(1)
38(1)
52(2)
52(2)
52(2)
52(2)
52(2)
65(3)
78(4)
116(7)
199(14)
15(0)
25(1)
25(1)
25(1)
25(1)
25(1)
25(1)
25(1)
25(1)
25(1)
25(1)
25(1)
25(1)
25(1)
25(1)
25(1)
25(1)
34(2)
43(3)
52(4)
11(0)
18(1)
18(1)
18(1)
18(1)
18(1)
18(1)
18(1)
18(1)
18(1)
18(1)
18(1)
18(1)
18(1)
18(1)
18(1)
18(1)
18(1)
25(2)
25(2) Determination of
Sample Size:
Reliability 95%
Expec
Expected
ted
popu
popu lation
lation
deviation
deviation
rate,
rate, %
% 2%
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
3.25
3.50
3.75
4.00
5.00
6.00
7.00
149(0)
236(1)
Tolerable rate
3%
4%
5%
6%
7%
8%
9%
99(0)
157(1)
157(1)
208(2)
74(0)
117(1)
117(1)
117(1)
156(2)
156(2)
192(3)
227(4)
59(0)
93(1)
93(1)
93(1)
93(1)
124(2)
124(2)
153(3)
181(4)
208(5)
49(0)
78(1)
78(1)
78(1)
78(1)
78(1)
103(2)
103(2)
127(3)
127(3)
150(4)
173(5)
195(6)
42(0)
66(1)
66(1)
66(1)
66(1)
66(1)
66(1)
88(2)
88(2)
88(2)
109(3)
109(3)
129(4)
148(5)
167(6)
185(7)
36(0)
58(1)
58(1)
58(1)
58(1)
58(1)
58(1)
77(2)
77(2)
77(2)
77(2)
95(3)
95(3)
112(4)
112(4)
129(5)
146(6)
32(0)
51(1)
51 (1)
51 (1)
51(1)
51(1)
51(1)
51(1)
68(2)
68(2)
68(2)
68(2)
84(3)
84(3)
84(3)
100(4)
100(4)
158(8)
10%
29(0)
46(1)
46(1)
46(1)
46(1)
46(1)
46(1)
46(1)
46(1)
61(2)
61(2)
61(2)
61(2)
61(2)
76(3)
76(3)
89(4)
116(6)
179(11)
15%
19(0)
30(1)
30(1)
30(1)
30(1)
30(1)
30(1)
30(1)
30(1)
30(1)
30(1)
30(1)
30(1)
30(1)
40(2)
40(2)
40(2)
40(2)
50(3)
68(5)
20%
14(0)
22(1)
22(1)
22(1)
22(1)
22(1)
22(1)
22(1)
22(1)
22(1)
22(1)
22(1)
22(1)
22(1)
22(1)
22(1)
22(1)
30(2)
30(2)
37(3) Sample Size Estimation:
Tests of Balances (Variable
Sampling)
n =
BV x R
_____________
Risk of incorr ect
acc epta nce, %
5.0
7.5
1 0.0
1 2.5
1 5.0
2 0.0
2 5.0
3 0.0
4 0.0
5 0.0
TM
Risk factor
3 .0
2 .6
2 .3
2 .1
1 .9
1 .6
1 .4
1 .2
0 .9
0 .7 Sample Evaluation:
Tests of Balances (Variable
Sampling)
Quantitative
Qualitative Sample Evaluation
Method: Decision Tree
yes
Ratio
PPS?
yes
no
Perpetual
Records?
no
Mean Value
Difference
or Ratio Sample Evaluation:
Tests of Balances (Variable
Sampling)
Mean Value Estimation
Method
EV = M x N
Difference Estimation
Method
EV = TBV +/- ED
ED = m(d) x N
Ratio Estimation Method
EV = TBV x (SAV÷SBV) Sample Evaluation:
Tests of Balances (Variable
Sampling)
Achieved Precision Range
APR = N x SE x Z
If APR > Materiality
Not enough statistical evidence
to accept or reject population;
Increase sample size or have
client fix the population
If APR < ½ Materiality
Decision interval = EV +/- APR
If ½ Materiality < APR < Materiality
Calculate Adjusted Achieved
Precision Range
AAPR = Materiality - APR
Decision Interval = EV +/- AAPR
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