When would it be appropriate to select all items (100% testing)?
population with small number of high value items
repetitive calculations performed using automated tools
significant risk of material misstatement
other means do not provide sufficient appropriate audit evidence
When would it be okay to select specific items?
high value, key items or suspicious items
all items over a certain amount
items to obtain information about the nature of the entity
Stratification
when you divide a population into a group. one group will be all items over PM and then you pick a sample from the remaining balance group
Audit sampling
application of audit procedures to less than 100% of the items in a population so that all sampling units have an equal chance of selection in order for the auditor to draw conclusions about the population
Types of sampling
Statistical - uses maths number tables to choose a sample which is free from bias
Non - statistical - does not use any mathematical basis for selecting a sample
`Examples of statistical sampling
random selection - uses a computerised random number generator to select the items in the sample. all items in the population have an equal chance of being selected
systematic selection - uses a constant interval between each selection. For eg. population is 1000 and sample size is 200. so internal is 5. so every 5th item. first select a random number
MUS - population is randomly ordered and and selected for sampling by weighting the items in proportion to their value.
Advantages of MUS
ensures that all material items have been selected
auditors can design procedures to evaluate the sample in a cost effective way using automated tools and techniques
Disadvantages of MUS
it doesnt work when there are credit balances in the population
it can be time consuming especially if the sample size is large
it will not be effective if the population is not randomly ordered
Sampling risk
the risk that an auditor expresses an inappropriate conclusion because the outcomes of the audit procedures on the sample chosen will be different if all items within the population was tested using the same audit procedure
What are the factors that affect sample size
expected error - the amount of error the auditor expects to be present in the population.
risk of material misstatement -
required confidence level - how confident the auditor needs to be that the sample is representative of the population as whole
tolerable error - the level of error or misstatement an auditor can accept before he is concerned that there is a material misstatement
Anomaly
a misstatement or deviation that is not representative of misstatements or deviations in a population
tolerable misstatement
a monetary amount set by the auditor in which he seeks to obtain an appropriate level of assurance that the monetary amount set by the auditor is not exceeded by the actual misstatement in the population
tolerable rate of deviation
a rate of deviation from prescribed internal control procedures set by the auditor in respect of which the auditor seeks to obtain an appropriate level of assurance that the rate of deviation set is not exceeded by the actual rate of deviation in the population
What are automated tools and techniques?
applications of audit procedures using the computer as an audit tool
Types of automated tools and techniues
audit software and test data
