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Developing a Sound Sampling Methodology © Elliott Davis Decosimo, PLLC Melody Reed, CRCM, CFSA March 9, 2015
Important Terms and Definitions Source: IIA Practice Advisory : Audit Sampling © Elliott Davis Decosimo, PLLC Audit Sampling Population Sampling Risk
Key: Validate the completeness of the population © Elliott Davis Decosimo, PLLC Know Before You Sample
Source: IIA Practice Advisory : Audit Sampling © Elliott Davis Decosimo, PLLC Types of Sampling Statistical Sampling Draw conclusions about the population based on mathematic confidence levels
Source: IIA Practice Advisory : Audit Sampling © Elliott Davis Decosimo, PLLC Types of Sampling Nonstatistical sampling AKA “Judgmental”
Source: IIA Practice Advisory : Audit Sampling © Elliott Davis Decosimo, PLLC Sampling Methods As with exercising, there are various sampling techniques
Every item in the population has an equal chance of being selected Random Sampling Source: PCAOB AU © Elliott Davis Decosimo, PLLC
Random start, select every n th Systematic Sampling Source: PCAOB AU © Elliott Davis Decosimo, PLLC N = 7
© Elliott Davis Decosimo, PLLC Haphazard Sampling Haphazard ≠ Careless Haphazard = Without Conscious Bias
Source: PCAOB AU © Elliott Davis Decosimo, PLLC Attribute Sampling Determine the characteristics of a population being evaluated a single record or document no gray area
Source: IIA Practice Advisory : Audit Sampling © Elliott Davis Decosimo, PLLC Variable Sampling Evaluate your entire population based on your sample data Mean-per-unit Ratio Difference
Source: IIA Practice Advisory : Audit Sampling & PCAOB: AU 350 © Elliott Davis Decosimo, PLLC Which Technique? Control Testing v Substantive Testing
Source: PCAOB: AU Section – © Elliott Davis Decosimo, PLLC Control Testing Relationship of the sample to the objective of the test of controls Maximum rate of deviations Allowable risk of assessing control risk Characteristics of the population (i.e. the items comprising the account balance or class of transactions of interest)
Source: PCAOB: AU Section – © Elliott Davis Decosimo, PLLC Substantive Testing Relationship of the sample to the relevant audit objective Tolerable misstatement Allowable risk of incorrect acceptance Characteristics of the population (i.e. the items comprising the account balance or class of transactions of interest)
© Elliott Davis Decosimo, PLLC OK, OK – How Many?! Answer: It Depends!
Source: The table is adapted from the table Small Population Sample Size Table in the AICPA Audit Guide Audit Sampling. The paragraph is from the AICPA Sampling Executive Summary for Posting to GAQC. © Elliott Davis Decosimo, PLLC Sample Size – Small Populations For populations between 52 and 250 items, a rule of thumb some auditors follow is to test a sample size of approximately 10 percent of the population, but the size is subject to professional judgment, which would include specific engagement risk assessment considerations.
Determine the Confidence Level (generally 95% or 90%) Determine the Tolerable Rate Population Expected Number of Deviations Sample Size Determination © Elliott Davis Decosimo, PLLC
DOCUMENTATION Most Important Thing Source: IIA Practice Advisory : Audit Sampling © Elliott Davis Decosimo, PLLC
WAKE UP © Elliott Davis Decosimo, PLLC It’s Over Now
Sources IIA Practice Advisory : Audit Sampling https://na.theiia.org/standards-guidance/Member%20Documents/PA_ pdf PCAOB: AU Section AICPA - Audit Sampling Considerations of Circular A-133 Compliance Audits Elliott Davis Decosimo ranks among the top 50 CPA firms in the U.S. With seventeen offices across seven states, the firm provides clients across a wide range of industries with smart, customized solutions. Elliott Davis Decosimo is an independent firm associated with Moore Stephens International Limited, one of the world's largest CPA firm associations with resources in every major market around the globe. For more information, please visit elliottdavis.com. © Elliott Davis Decosimo, PLLC
McGraw-Hill/Irwin © The McGraw-Hill Companies 2010 Audit Sampling: An Overview and Application to Tests of Controls Chapter Eight.
1 AU 350 SAS 111 Audit Sampling C Delano Gray June 14, 2008.
Audit Sampling Chapter 09 McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
1 Audit Risk Week Risk Assessment in Planning AR = IR x CR x DR To meet desired level of Audit Risk Need to assess each component IR & CR can be.
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Chapter 6 Sampling: Theory and Methods Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin.
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Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin.
PLANNING THE AUDIT Individual audits must be properly planned to ensure: Appropriate and sufficient evidence is obtained to support the auditors opinion;
An overview of COSOs 2013 update to the Internal Control – Integrated Framework COSO changes coming in 2014 January 7, 2014.
Sample Size Determination. Introduction Integral part of vast majority of quantitative studies Integral part of vast majority of quantitative studies.
IND 205 Audit Populations & Samples TLO #10: Given the requirement to audit a Contractors Property Management System, determine how to define a population,
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