STATISTICAL TOOLS FOR AUDITING

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Audit Sampling: An Overview and Application to Tests of Controls

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STATISTICAL TOOLS FOR AUDITING Part Four

CHAPTER 8 AUDIT SAMPLING: AN OVERVIEW AND APPLICATION TO TESTS OF CONTROLS Chapter 8

SAMPLING DEFINED SAS No. 39 defines audit sampling as 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 (AU 350.01).

AUDIT PROCEDURES THAT DO NOT INVOLVE AUDIT SAMPLING Inquiry and observation Analytical procedures Procedures applied to every item in the population Classes of transactions or account balances not tested Tests of automated information technology controls.

TERMINOLOGY Sampling risk Type I and Type II errors Risk of assessing CR too high / Risk of incorrect rejection Risk of assessing CR too low / Risk of incorrect acceptance Precision

TYPES OF AUDIT SAMPLING Nonstatistical versus statistical sampling Types of statistical sampling techniques Attribute sampling Monetary-unit sampling Classical variables sampling

ATTRIBUTE SAMPLING APPLIED TO TESTS OF CONTROLS Attribute sampling is a statistical method used to estimate the proportion of a characteristic in a population. The auditor is normally attempting to determine the operating effectiveness of a control procedure in terms of deviations from the prescribed internal control.

PHASES IN AN ATTRIBUTE SAMPLING APPLICATION Planning Performance Evaluation

PLANNING Determine the tests objective(s). Define the control deviation conditions. Define the population. Define the period covered by the test. Define the sampling unit.

PLANNING Determine sample size: Determine the acceptable risk of assessing control risk too low. Determine the tolerable deviation rate. Determine the expected population deviation rate. Consider the effect of population size.

PERFORMANCE Randomly select the sample items. Perform the audit procedures.

SPECIAL SITUATIONS IN PERFORMING THE AUDIT PROCEDURES Voided documents. Unused or inapplicable documents. Inability to examine a sample item. Stopping the test before completion.

EVALUATION Calculating the sample results. Performing error analysis. Drawing final conclusions (see Table 8-6)

Table 8-5. The Auditor's Risks When Evaluating Sample Evidence

AN EXAMPLE OF A SAMPLING PLAN

THE RESULTS OF TESTS OF CONTROLS

CHAPTER 8 AUDIT SAMPLING: AN OVERVIEW AND APPLICATION TO TESTS OF CONTROLS Chapter 8