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Modern Auditing: Assurance Services and the Integrity
of Financial Reporting, 8th Edition
William C. Boynton California Polytechnic State
University at San Luis Obispo
Raymond N. Johnson Portland State University
Chapter 13 – Audit Sampling
Chapter Overview
Basic Audit Sampling Concepts
• Nature and Purpose of Audit
Sampling
– Use less than 100% of items
– Apply to evaluate entire population
• Uncertainty and Audit Sampling
– Audit Risk
– Control Risk and Test of Details Risk
Sampling Risk
• Sample v. Population
• Tests of Controls
– Risk of Assessing Control Risk too Low
– Risk of Assessing Control Risk too High
• Substantive Tests
– Risk of Incorrect Acceptance
– Risk of Incorrect Rejection
Sampling Risks – Tests of
Controls
Sampling Risks – Substantive
Tests
Nonsampling Risk
• Human mistakes
• Inappropriate application of audit
procedures
• Misinterpretation of results of sample
• Reliance upon erroneous information
from another party
Nonstatistical and Statistical
Sampling
Nonstatistical and Statistical
Sampling
Tests of Controls v. Substantive
Tests
Audit Sampling for Tests of
Controls
• Determine the Objectives of the
Tests of Controls
• Determine the Procedures to
Evaluate Internal Controls
• Make a Decision about the Audit
Sampling Technique
Audit Sampling for Tests of
Controls
• Define the Population and Sampling Unit
• Use Professional Judgment to Determine
Sample Size
– Nature of Control
– Frequency of Operation
– Importance of the Control
– Risk of Assessing Control Risk too Low
– Tolerable and Expected Deviation Rates
– Population Size
Audit Sampling for Tests of
Controls
• Select a Representative Sample
• Apply Audit Procedure
• Evaluate the Sample Results
• Document Conclusions
Audit Sampling for Substantive
Tests - PPS
• Determine the Objectives of the
Substantive Test
– Estimating total amount of population
– Estimating amount of misstatement
• Determine the Substantive Audit
Procedures to Perform
– Tests of Details of Transactions
– Tests of Details of Balances
Audit Sampling for Substantive
Tests - PPS
• Make a Decision About the Audit
Sampling Technique
– PPS v. Classical Variables Sampling
• Define the Population and Sampling
Unit
– Reciprocal Population
– Logical Sampling Unit
Audit Sampling for Substantive
Tests - PPS
• Use Professional Judgment and Statistical Methods to Determine Sample Size
– Book Value of Population Tested
– Reliability Factor for Specified Risk of Incorrect Acceptance
– Tolerable Misstatement
– Anticipated Misstatement and Expansion Factor
– Calculation of Sample Size
Audit Sampling for Substantive
Tests - PPS
• Select a Representative Sample
– Sampling Risk
– Calculate Sampling Interval
– Select Random Sample
• Apply Audit Procedures
Audit Sampling for Substantive
Tests - PPS
• Evaluate Sample Results
– Upper Misstatement Limit
– No Misstatements Found in the
Sample
– Some Misstatements Found in the
Sample
– Qualitative Considerations
• Document Conclusions