1. 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

2. Chapter Overview

3. 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

4. Sampling Risk Sample v. Population Tests of Controls Substantive Tests
Risk of Assessing Control Risk too Low
Risk of Assessing Control Risk too High
Substantive Tests
Risk of Incorrect Acceptance
Risk of Incorrect Rejection

5. Sampling Risks – Tests of Controls

6. Sampling Risks – Substantive Tests

7. Nonsampling Risk Human mistakes
Inappropriate application of audit procedures
Misinterpretation of results of sample
Reliance upon erroneous information from another party

8. Nonstatistical and Statistical Sampling

9. Nonstatistical and Statistical Sampling

10. Study Break
The risk that the sample will not be representative of the population is:
Inherent Risk
Audit Risk
Control Risk
Sampling Risk
D. Sampling Risk

11. 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:
Risk of assessing control risk too low
Risk of assessing control risk too high
Risk of incorrect acceptance
Risk of incorrect rejection
C. Risk of incorrect acceptance

12. Tests of Controls v. Substantive Tests

13. 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

14. 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

15. Audit Sampling for Tests of Controls
Select a Representative Sample
Apply Audit Procedure
Evaluate the Sample Results
Document Conclusions

16. Study Break
The _____ represents the way the auditor identifies the performance of internal controls of interest.
Population
Sampling Unit
Materiality
Sampling Risk
B. Sampling Unit

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

18. 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

19. 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

20. 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

21. Audit Sampling for Substantive Tests - PPS
Select a Representative Sample
Sampling Risk
Calculate Sampling Interval
Select Random Sample
Apply Audit Procedures

22. 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

23. Study Break
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.
Test of Controls
Attribute Tests
Audit Tests
Substantive Tests
D. Substantive Tests

24. Study Break
In PPS, an item snagged in the selection of the sample is know as the ______.
Sampling Unit
Logical Sampling Unit
Population
Tolerable Misstatement
B. Logical Sampling Unit