Audit 5.1 Audit Sampling (Variable Sampling)
Consintration on Variable Audit Sampling. used for Substantive Testing
Terms in this set (29)
AKA: Estimation Sampling
Estimating the Dollar Value of the Population
Planning Consideration - Tolerable Misstatement
The MAXIMUM monetary misstatement in the related account balance that the auditors is willing to accept.
Auditors desired precision=Materiality.
Variables = Misstatement
Attributes = deviation or Errors
Sampling Selection Considerations-Stratisfication
Items subject to sampling, may be seperated into Homogeneous groups.
Reduce Sample Size.
Used for Highly Variable recorded Accounts.
Projected vs Tolerable:
Projected Misstatement-Rule#3 - upon completion of Sampling procedures the auditor projects the misstatement results of the sample to the items in the population
Variability = Uncertainty = Larger Sample size
*Stratification > Reduces Variability > Smaller Sample Size
Is used in making statistical Sampling.
Variable Sampling Plans
Projecting on to financials.
Mean per unit Estimation
250 x 2000 = $500,000(point Estimate)
10 x 2000 = plus/minus $20,000 (at 1 Std. dev.) Precision
? x 550,000 = 500,000 (point estimate)
27500-25000 / 100 = ?
? x 2000= $50,000(adjustment required)
Steps for Substantive Testing
Variable Sampling. Define Objections of the test.
Define the Population
Define Sampling Unit.
Determine the Sample Size
Determine Sample Size
Tolerable Misstatement- Higher this is the Lower the sample size required
Acceptable level of risk
Characteristics of the population
Assessed risk of Material Misstatment.
Sample Size Increase as these Increase (Direct Relationship):
Standard Deviation (Population Variability)
Assessed level of Risk.
Sample Size Decrease as these Increase (Inverse Relationship)
Acceptable level of Risk
Print Page 17
Print Page 17
Select the Sample
Evaluate the Sample Results.
Form Conclusions about the Balances tested
Qualitative Considerations Errors=Unintentional
Document sampling procedures
Probability-Proportional to Size(PPS)
Dollar unit Sampling
PPS Sampling-hybrid uses attribute sample to provide results in a dollar amount
Advantages of PPS Sampling
Stratifying Done Automatically
emphasizes larger items by stratifying the sample.
If No errors are expected PPS would require a smaller sample.
DisAdvantage of PPS sampling
Zero, Negative, Understated balances require special designed considerations.
Means If Accounts Recievable Balance equals Zero, there is no chance of balance being audited.
PPS sampling size
sampling Interval = Tolerable/Reliability Factor.
Sample Size = Recorded Amount of the Population/Sampling Interval
the maximum dollar error that may exist in an account without causing the financials to material misstatment.
Correspnds to the risk of incorrect acceptance and are generally obtained from the table Pg 20.
Sampling page 21
pg 21 see this.
The nature and cause of deviation.
Dual - Purpose Sampling
Use same sample for
Attribute Sampling and Variable sampling.
Acceptable low risk of deviation rate exceeding tolerable rate.