CHAPTER 14

AUDIT SAMPLING FOR TESTS OF DETAIL OF BALANCES

NONSTATISTICAL SAMPLING PLAN

– STATE OBJECTIVES OF TEST• EVIDENCE OF MISSTATEMENT IN ACCOUNT BALANCE

– DECIDE IF SAMPLING APPLIES

– DEFINE MISSTATEMENT CONDITIONS

– DEFINE POPULATION• STRATIFICATION

– SAMPLING UNIT• LOGICAL UNIT – ITEM MAKING UP BALANCE

• DOLLAR IN POPULATION

– TOLERABLE MISSTATEMENT

– ACCEPTABLE RISK OF INCORRECT ACCEPTANCE• FIGURE 14-3, PAGE 488

– DETERMINE INITIAL SAMPLE SIZE• FIGURE 14-4, PAGE 489

– SELECT SAMPLE

– PERFORM AUDIT PROCEDURES

– GENERALIZE FROM SAMPLE TO POPULATION• POINT ESTIMATE OF POPULATION MISSTATEMENT

• JUDGMENT REGARDING ALLOWANCE FOR SAMPLING RISK – STATISTICAL SAMPLING

• TOLERABLE MISSTATEMENT – NONSTATISTICAL

– ANALYZE MISSTATEMENTS

– ACTION TO REJECT POPULATION• RELATE TO OTHER TESTS

• EXPAND AUDIT TESTS

• INCREASE SAMPLE SIZE

• ADJUST ACCOUNT BALANCE

• REQUEST CLIENT ASSISTANCE

• MODIFY OPINION

MONETARY UNIT SAMPLING

– OTHER NAMES• DOLLAR UNIT SAMPLING

• PROBABLITITY-PROPORTIONATE TO SIZE SAMPLING

– DIFFERENCES BETWEEN NONSTATISTICAL SAMPLING

• INDIVIDUAL DOLLAR SAMPLING UNIT

• POPULATION SIZE IS NUMBER OF “NORMAL” DOLLARS IN BALANCE

• PRELIMINARY ESTIMATE OF MATERIALITY

• SAMPLE SIZE USING FORMULA

• SAMPLE SELECTION USING PPS

• PROJECT TO POPULATION USING MUS– NO MISSTATEMENTS FOUND

– SOME MISSTATEMENTS FOUND

GENERALIZE TO POPULATION- NO EXCEPTIONS

– POPULATION = $1,200,000

– SAMPLE SIZE = 100

– ACCEPTABLE RISK OF INCORRECT ACCEPTANCE = 5%

– USE TABLE ON PAGE 425• INTERSECTION OF 100 SAMPLE SIZE AND 0 MISSTATMENTS

= 3%

• CONCLUSION IS THAT THERE IS A 5% RISK THAT MORE THAN 3% OF DOLLARS IN POPULATION ARE MISSTATED

• UPPER AND LOWER BOUND = $36,000 (3%X$1,200,000) IS A CONSERVATIVE ESTIMATE OF MISSTATEMENT

GENERALIZE TO POPULATION – SOME MISSTATEMENTS

• SAME ASSUMPTIONS AS ABOVE– OVERSTATEMENTS AND OVERSTATEMENTS ARE

SEPARATED, THEN COMBINED– DIFFERENT MISSTATEMENT ASSUMPTION MADE FOR

EACH MISSTATEMENT INCLUDING ZERO MISSTATEMENTS

– LAYERS OF COMPUTED UPPER EXCEPTION RATE FROM ATTRIBUTES SAMPLING TABLE

– MISSTATEMENT ASSUMPTION ASSOCIATED WITH EACH LAYER

– ADJUSTMENT FOR OFFSETTING AMOUNTS

• DECIDE ACCEPTABLITY OF POPULATION

DETERMINE SAMPLE SIZE

• MATERIALITY

• ESTIMATED PERCENT MISSTATEMENT FOR POPULATION ITEMS CONTAINING MISSTATEMENT

• ACCEPTABLE RISK OF INCORRECT ACCEPTANCE

• POPULATION VALUE

• ESTIMATE POPULATION EXCEPTION RATE

• EXAMPLE PAGE 502

VARIABLES SAMPLING• SAMPLING DISTRIBUTIONS• STATISTICAL INFERENCE• VARIABLE SAMPLING TECHNIQUES

– MEAN-PER-UNIT (MPU)– DIFFERENCE ESTIMATION– RATIO ESTIMATION

• POINT ESTIMATE OF POPULATION VALUES– MPU

• TOTAL AUDIT VALUE IN SAMPLE / SAMPLE SIZE (#0• AVERAGE AUDIT VALUE X NUMBER ITEMS IN POP.

– DIFFERENCE ESTIMATION• TOTAL MISSTATEMENT IN SAMPLE / SAMPLE SIZE (#)• AVERAGE MISSTATEMENT X ITEMS IN POPULATION

– RATIO ESTIMATION• TOTAL MISTATEMENT IN SAMPLE / SAMPLE SIZE ($)• PERCENTAGE OF MISSTATEMENT X POPULATION ($)