Modern

Modern Auditing:
Auditing:
Assurance
Assurance Services
Services and
and the
the Integrity
Integrity
of
of Financial Reporting, 8th Edition
Financial Reporting, 8 th
Edition

William C. Boynton
California Polytechnic State
University at San Luis Obispo
Raymond N. Johnson
Portland State University

Chapter 13 Audit Sampling

Chapter
Chapter Overview
Overview
 Basic
Basic Audit
Audit Sampling
Sampling Concepts
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
Sampling Risk
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
Sampling Risks
Risks Tests
Tests of
of
Controls
Controls
Sampling
Sampling Risks
Risks Substantive
Substantive
Tests
Tests
 Nonsampling
Nonsampling Risk
Risk
Human mistakes

Inappropriate application of audit

procedures

Misinterpretation of results of sample

Reliance upon erroneous information

from another party
Nonstatistical
Nonstatistical and
and Statistical
Statistical
Sampling
Sampling
Nonstatistical
Nonstatistical and
and Statistical
Statistical
Sampling
Sampling
 Study
Study Break
Break
1. The risk that the sample will not
be representative of the
population is:
A. Inherent Risk
B. Audit Risk
C. Control Risk
D. Sampling Risk

D. Sampling Risk
 Study
Study Break
Break
2. The risk that the sample supports the
conclusion that the recorded account
balance is not materially misstated when
it is materially misstated is:
A. Risk of assessing control risk too low
B. Risk of assessing control risk too high
C. Risk of incorrect acceptance
D. Risk of incorrect rejection

C. Risk of incorrect acceptance

Tests
Tests of
of Controls
Controls v.
v. Substantive
Substantive
Tests
Tests
 Audit
Audit Sampling
Sampling for
for Tests
Tests of
of
Controls
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
Audit Sampling
Sampling for
for Tests
Tests of
of
Controls
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
Audit Sampling
Sampling for
for Tests
Tests of
of
Controls
Controls
Select a Representative Sample

Apply Audit Procedure

Evaluate the Sample Results

Document Conclusions
 Study
Study Break
Break
3. The _____ represents the way the
auditor identifies the performance
of internal controls of interest.
A. Population
B. Sampling Unit
C. Materiality
D. Sampling Risk

B. Sampling Unit
 Study
Study Break
Break
4. The _____ is the maximum rate of
deviation from a control that an
auditor is willing to accept and
still use the planned control risk.
A. Tolerable deviation rate
B. Maximum deviation rate
C. Maximum error rate
D. Inherent risk

A. Tolerable deviation rate

 Audit
Audit Sampling
Sampling for
for Substantive
Substantive
Tests
Tests -- PPS
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
Audit Sampling
Sampling for
for Substantive
Substantive
Tests
Tests -- PPS
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
Audit Sampling
Sampling for
for Substantive
Substantive
Tests
Tests -- PPS
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
Audit Sampling
Sampling for
for Substantive
Substantive
Tests
Tests -- PPS
PPS
Select a Representative Sample
Sampling Risk
Calculate Sampling Interval
Select Random Sample

Apply Audit Procedures

 Audit
Audit Sampling
Sampling for
for Substantive
Substantive
Tests
Tests -- PPS
PPS
Evaluate Sample Results
Upper Misstatement Limit
No Misstatements Found in the Sample
Some Misstatements Found in the
Sample
Qualitative Considerations

Document Conclusions
 Study
Study Break
Break
5. This type of test can be used to
estimate the total dollar amount
of a population or the total dollar
amount of error in a population.
A. Test of Controls
B. Attribute Tests
C. Audit Tests
D. Substantive Tests

D. Substantive Tests
 Study
Study Break
Break
6. In PPS, an item snagged in the
selection of the sample is know as
the ______.
A. Sampling Unit
B. Logical Sampling Unit
C. Population
D. Tolerable Misstatement

B. Logical Sampling Unit