Audit Sampling Using Statistical Methods

Topics: Sampling, Sample, Sample size Pages: 4 (534 words) Published: June 26, 2013
Audit Sampling Using Statistical Methods Presented By: Abhishek Agrawal

AUDIT SAMPLING
• Application of an audit procedure to less than 100% of the items in a population – Account balance – Class of transactions

• Examination “on a test basis” • Key: Sample is intended to be representative of the population.

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SAMPLING RISK
• Possibility that the sample is NOT representative of the population • As a result, auditor will reach WRONG conclusion • Decision errors – Type I – Risk of incorrect rejection – Type II – Risk of incorrect acceptance

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TYPE I – RISK OF INCORRECT REJECTION
• Internal control: Risk that sample supports conclusion that control is NOT operating effectively when it really is – AKA – Risk of underreliance, risk of assessing control risk too high

• Substantive testing: Risk that sample supports conclusion that balance is NOT properly stated when it really is APIPA 2009 4

TYPE II – RISK OF INCORRECT ACCEPTANCE
• Internal control: Risk that sample supports conclusion that control is operating effectively when it really isn’t – AKA – Risk of overreliance, risk of assessing control risk too low

• Substantive testing: Risk that sample supports conclusion that balance is properly stated when it really isn’t APIPA 2009 5

WHICH RISK POSES THE GREATER DANGER TO AN AUDITOR? • Risk of incorrect rejection – Efficiency

• Risk of incorrect acceptance
– Effectiveness

• Auditor focus on Type II
– Also provides coverage for Type I

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WHEN DO YOU SAMPLE?
• Inspection of tangible assets, e.g., inventory observation • Inspection of records or documents, e.g., internal control testing • Reperformance, e.g., internal control testing • Confirmation, e.g., verification of AR balances

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Audit sampling can be based on:
judgment OR
statistics

nonstatistical sampling
judgmentally determine sample size implicitly recognizing relevant factors...