6. Sampling.pdf

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Simon Fraser University
Business Administration
BUS 426
Brad Bart

AUDIT SAMPLINGUsing the concepts of materiality audit risk inherent risk control risk and detection risk this module this module discusses the topic of audit sampling Audit sampling is not a specific audit procedure but it is a method of organizing the application of audit procedures and a method of organizing the auditors decisionmaking processTerminology Audit Samplingthe application of an audit procedure to less than 100 of the items within an account balance population or class of transactions for the purpose of evaluating some characteristics of the balance or classAudit Procedureactions described as general audit techniques computations observations confirmation enquiry inspection and analysisAccount Balancea control account made up of many componentseg accounts receivable control account is made up of many individual accounts receivable balancesClass of transactionsa group of transactions having common characteristicseg cash disbursements or cash receiptsPopulationset of all the elements that constitute an account balance or class of transactions Population Uniteach of the individual elements in the populationSampling Uniteach of the individual elements selected for the sampleSamplethe set of all sampling unitsHow Risk and Materiality Are Used in Audit Sampling1 ACCT4750WINTER2013ROBERTSONCICA CAS 500 The determination of an appropriate sample on a representative basis may be made using either statistical or nonstatistical methods Whether statistical or nonstatistical methods are used their common purpose is to enable the auditor to reach a conclusion about an entire set of data by examining only a part of itStatistical sampling methods allow the auditor to express in mathematical terms the uncertainty he or she is willing to accept and the conclusions of his or her test The use of statistical methods does not eliminate the need for the auditor to exercise judgment For example the auditor has to determine the degree of audit risk he or she is willing to accept and make a judgment as to materialityRead Professional Judgement and the Extent of Audit Testing on page 367 368 for an understanding of the concepts in that sectionSampling and the Extent of Audit TestingIn earlier modules the nature timing and extent of audit procedures were explained In the audit sampling area the extent of the audit procedures is a significant topic Should auditors test every single transaction during the year or should they test a sample of transactions that is sufficient to provide confidence that the financial statements are not materiality misstated Clearly it is necessary from a time and cost point of view to test a sample of transactions In the past and sometimes currently sample are selected judgementally but increasingly as population sizes increase auditors rely more on statistical methods to choose transactions to testNote the review and summary of the 2 kinds of audit programs and the related uses and populations for audit sampling on page 369 2 ACCT4750WINTER2013ROBERTSON
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