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
Study Break
1. The risk that the sample will not
be representative of the
population is:
A.
B.
C.
D.
Inherent Risk
Audit Risk
Control Risk
Sampling Risk
D. Sampling Risk
Study 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.
B.
C.
D.
Risk
Risk
Risk
Risk
of
of
of
of
assessing control risk too low
assessing control risk too high
incorrect acceptance
incorrect rejection
C. Risk of incorrect acceptance
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
Study Break
3. The _____ represents the way the
auditor identifies the performance
of internal controls of interest.
A.
B.
C.
D.
Population
Sampling Unit
Materiality
Sampling Risk
B. Sampling Unit
Study 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.
B.
C.
D.
Tolerable deviation rate
Maximum deviation rate
Maximum error rate
Inherent risk
A. Tolerable deviation rate
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
Study 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.
B.
C.
D.
Test of Controls
Attribute Tests
Audit Tests
Substantive Tests
D. Substantive Tests
Study Break
6. In PPS, an item snagged in the
selection of the sample is know as
the ______.
A.
B.
C.
D.
Sampling Unit
Logical Sampling Unit
Population
Tolerable Misstatement
B. Logical Sampling Unit