©2012 pearson education, auditing 14/e, arens/elder/beasley 5 - 5 audit sampling for tests of...
TRANSCRIPT
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 5 - 5
Audit Sampling for Tests of Audit Sampling for Tests of Controls and Substantive Controls and Substantive
Tests of TransactionsTests of Transactions
Chapter 15Chapter 15
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 22
Learning Objective 1Learning Objective 1
Explain the concept of representative Explain the concept of representative sampling.sampling.
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 33
Representative SamplesRepresentative Samples
A representative sample is one in whichthe characteristics in the sample of auditinterest are approximately the same asthose of the population.
In practice, an auditor can increase the likelihood of a representative sample by using care in designing the sampling process and selection, and evaluating the results.
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 44
Sampling RisksSampling Risks
Sampling risk is the risk that an auditorreaches an incorrect conclusion because the sample is not representative of the population.
Nonsampling risk is the risk that audittests do not uncover existing exceptionsin the sample.
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 55
Minimizing Sampling RiskMinimizing Sampling Risk
Use appropriate sample selectionmethod
Adjust sample
size
Step 1 Step 2
Sampling Risk Meter
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 66
Learning Objective 2Learning Objective 2
Distinguish between statistical and Distinguish between statistical and nonstatistical sampling and between nonstatistical sampling and between probabilistic and nonprobabilistic probabilistic and nonprobabilistic sample selection.sample selection.
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 77
Statistical Versus Statistical Versus Nonstatistical SamplingNonstatistical Sampling
Similarities of both approaches:
Select the sample
and perform the tests
Plan the sample
Step 1
Step 2
Evaluate the results
Step 3
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 88
Statistical Versus Statistical Versus Nonstatistical SamplingNonstatistical Sampling
Statistical sampling allows the quantificationof sampling risk in planning the sample (Step 1)and evaluating the results (Step 3)
In nonstatistical sampling those items thatthe auditor believes will provide the mostuseful information are selected
Differences in approach:
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 99
Probabilistic Versus Probabilistic Versus Nonprobabilistic Sample Nonprobabilistic Sample
Selection Selection
Probabilistic sample selection is a methodof selecting a sample such that eachpopulation item has a known probabilityof being included in the sample.
Nonprobabilistic sample selection is amethod in which the auditor uses professionaljudgment rather than probabilistic methods.
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 1010
Probabilistic Versus Probabilistic Versus Nonprobabilistic Sample Nonprobabilistic Sample
Selection Selection
1. Directed sample selection
2. Block sample selection
3. Haphazard sample selection
Nonprobabilistic selection methods:
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 1111
Probabilistic Versus Probabilistic Versus Nonprobabilistic Sample Nonprobabilistic Sample
SelectionSelection
1. Simple random sample selection
2. Systematic sample selection
3. Probability proportional to size sample selection
4. Stratified sample selection
Probabilistic selection methods:
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 1212
Nonprobabilistic SampleNonprobabilistic SampleSelection MethodsSelection Methods
Directed sample selection is the selection ofeach item based on auditor’s judgmental criteria.
Items most likely to contain misstatements
Items containing selected population characteristics
Large dollar coverage
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 1313
Nonprobabilistic SampleNonprobabilistic SampleSelection MethodsSelection Methods
Block sample selection is the selectionof several items in sequence.
Haphazard sample selection is the selection of items without any conscious bias on the part of the auditor.
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 1414
Learning Objective 3Learning Objective 3
Select representative samples.Select representative samples.
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 1515
Probabilistic Sample Probabilistic Sample Selection MethodsSelection Methods
A simple random sample is one in whichevery possible combination of elementsin the population has an equal chanceof constituting the sample.
Computer generation of random numbers offers several advantages
time savingsreduced risk of errorautomatic documentation
Random number tables
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 1616
Random Sample Selection Random Sample Selection ToolsTools
Computer generation of random numbers offers several advantages
•time savings•reduced risk of error•automatic documentation
Random number tables
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 1717
Probabilistic Sample Probabilistic Sample Selection MethodsSelection Methods
Systematic sample selection:
The auditor calculates an interval andthen selects the items for the samplebased on the size of the interval.
The interval is determined by dividingthe population size by the number ofsample items desired.
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 1818
Probabilistic Sample Probabilistic Sample Selection MethodsSelection Methods
Probability proportional to size:
A sample is taken where the probabilityof selecting any individual population itemis proportional to its recorded amount (PPS).
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 1919
Learning Objective 4Learning Objective 4
Define and describe audit sampling for Define and describe audit sampling for exception rates.exception rates.
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 2020
Sampling for Exception Sampling for Exception RatesRates
The occurrence rate, or exception rate,is the percent of items in the population containing the characteristic or specific attribute of interest to the total numberof population items.
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 2121
Sampling for Exception Sampling for Exception RatesRates
Following are types of exceptions inpopulations of accounting data:
1.Deviations from client’s established controls
2.Monetary misstatements in populationsof transaction data
3.Monetary misstatements in populations ofaccount balance details
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 2222
Learning Objective 5Learning Objective 5
Use nonstatistical sampling in tests of Use nonstatistical sampling in tests of controls and substantive tests of controls and substantive tests of transactions.transactions.
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 2323
Terms Used in Audit Terms Used in Audit SamplingSampling
Characteristic or attribute Acceptable risk of assessing control risk too
low (ARACR) Tolerable exception rate (TER) Estimated population exception rate (EPER) Initial sample size
Terms related to planning:
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 2424
Terms Used in Audit Terms Used in Audit SamplingSampling
Exception Sample exception rate (SER) Computed upper exception rate (CUER)
Terms related to evaluating results:
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 2525
I: Plan the SampleI: Plan the Sample
Decide whether
audit sampling applies.
State the objectives of the audit test.
Step 1 Step 2
Define attributes
and exception conditions
Step 3
Define the population
Step 4 Define the
sampling unit
Step 5
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 2626
I: Plan the SampleI: Plan the Sample
Specify acceptable
risk of assessing
control risk too low
Specify the
tolerable exception rate.
Step 6 Step 7
Estimate the
population exception
rate.
Step 8
Determine the initial sample
size
Step 9
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 2727
II: Select the Sample and II: Select the Sample and Perform the Audit ProceduresPerform the Audit Procedures
Perform the audit procedure
s
Select the
sample
Step10Step 11
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 2828
III: Evaluate the ResultsIII: Evaluate the Results
Analyze exceptions
Generalize from
the sample to the
population
Step 12
Step 13Decide the acceptability of the
population
Step 14
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 2929
Guidelines for ARACR and Guidelines for ARACR and TER Tests of ControlsTER Tests of Controls
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 3030
Guidelines for ARACR and Guidelines for ARACR and TER Tests of TransactionsTER Tests of Transactions
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 3131
Effect on Sample Size of Effect on Sample Size of Changing FactorsChanging Factors
Effect on initialType of change sample size
Increase acceptable risk ofassessing control risk too low
Increase tolerable risk rate
Increase estimated populationexception rate
Increase population size (minor)
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 3232
Actions When Population isActions When Population isNot AcceptableNot Acceptable
Revise TER or ARACR
Expand the sample size
Revise assessed control risk
Communicate with the auditcommittee or management
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 3333
Summary of Audit Sampling Summary of Audit Sampling StepsSteps
Plan the sample(Steps 1-9)
Select the sample(Step 10)
Perform the tests(Step 11)
Evaluate the results(Steps 12-14)
Number ofexceptionsin sampleand actualsample size
To Step 12To Step 14
Fro
mS
tep
12
Com
pare
To/From Step 6
Computedupper
exceptionrate
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 3434
Learning Objective 6Learning Objective 6
Define and describe attributes Define and describe attributes sampling and a sampling distribution.sampling and a sampling distribution.
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 3535
Statistical Audit SamplingStatistical Audit Sampling
The statistical sampling method mostcommonly used for tests of controlsand substantive tests of transactionsis attributes sampling.
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 3636
Sampling DistributionSampling Distribution
It is a frequency distribution of the resultsof all possible samples of a specified sizethat could be obtained from a populationcontaining some specific parameters.
Attributes sampling is based on thebinomial distribution.
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 3737
Sampling DistributionSampling Distribution
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 3838
Learning Objective 7Learning Objective 7
Use attributes sampling in tests of Use attributes sampling in tests of controls and substantive tests of controls and substantive tests of transactions.transactions.
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 3939
Application of Attributes Application of Attributes SamplingSampling
i. Select the table corresponding to the ARACRii. Locate the TER on the top of the tableiii. Locate the EPER in the far left columniv. Read down the appropriate TER column until
it intersects with the appropriate EPER rowin order to get the initial sample size
Use of the tables:
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 4040
Application of Attributes Application of Attributes SamplingSampling
Population size is a minor considerationin determining sample size
Representativeness is ensured by the sampleselection process more than by sample size
Effect of population size:
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 15 - 15 - 4141
Application of Attributes Application of Attributes SamplingSampling
Select the sample
Perform the audit procedures
Evaluate the results
©2012 Pearson Education, ©2012 Pearson Education, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 5 - 5
End of Chapter 15End of Chapter 15