Hernan, Ms. Divia R, AUDIT SAMPLING Related PSAs: PSA 500, 530, PSA 500 (Redrafted) Audit Evidence states that: “When designing tests of controls and tests of details, the auditor shall determine means of selecting items for testing that are effective in meeting the purpose of the audit procedure.” AUDIT SAMPLING the application of audit procedures to less than 100% of the items within a population of audit relevance such that all sampling units have a chance of selection in order to provide auditor reasonable basis on which to draw conclusions about the entire population (PSA 530) > is performed on the assumption that the sample selected for testing is the representative of the population. a. Not all testing procedures performed by the auditors involve audit sampling. It would be more appropriate the auditor may decide 100% EXAMINATION for an account balance that constitute small number of large items b, The auditor may decide to apply audit procedures only to those items which have particular testing (SELECTIVE TESTING) Table 11-1. Selecting Specific Items DESCRIPTION High value or Key Items The auditor may decide to select specific items within a population because they are of high value, or exhibit some other characteristic, for example items that are suspicious, unusual, particularly risk prone or that have history of error Allitems over a certain ‘The auditor may decide to examine items whose values exceed a amount certain amount so that as to verify a large proportion of the total __| amount of class of transactions or account balance Items to Obtain Information | The auditor may examine items to obtain information about ‘matters such as nature of the entity, the nature of transactions, and internal control__ Item to test control activities | The auditor may use judgment to select and examine specific items to determine whether or not a particular control activity is being | performed RISKS IN SAMPLING ‘SAMPLING RISK arises from the possibility that the auditor’s conclusion, based on a sample may be different from the conclusion reached if the entire population were subjected to the same audit procedures exists because the sample selected for testing may not be truly representative of a population sampling risk is to be measured and controlled. The auditor controls sampling risk by specifying the acceptable level when developing a sampling plan TYPES OF SAMPLING RISK A. for TESTS OF CONTRO! $k of Assessing control risk TOO LOW (Risk of overreliance/Beta Risk/Type Il risk) ‘+ The risk that the auditor will conclude that ni vis OR the internal control is reliable when in fact itis not effective and cannot be relied upon ‘© The risk that a sample does support assessing control risk below the maximum when, Unknown tothe auctor, the teen tele OTE ROpUlatocupporcecessingcontol 7 ee erry a i dE RTINEa v v Audit Sampling Leah Salazar-Manalang, CPA, MM Page 1 of 12zr jozeaed WW ‘Vado Buejeuey-seze Tes Yeo Suydures upnv wear tipne ays Jo Uoystaadns pue mainas ‘uont2auip avenbope Buiuueyd sadosd :hq paziuqutus aq ued 3! 2MaMoH ° tuone|ndod aque aip saunusexs suypne aus vane payeuluaia aq zoUUeD en Huyyrows S| 9sb BUySWeS YON» SIE DNIIAINVS-NON “8 su Buyawes SNISvauDIO smtp ‘uoRe|ndod ‘ayy jo annequasoidas auiooag sojdiwes o1R poujaud uoRDa[as ajduies ayersdosdde Buys» ais oldies Bujseasour 2hq 9s} Buyjswwes fo.U09 SHOP -uiicrediomana suum onan SRE SAE : f | nas ‘v | SUSIY HL ONITIOULNOD Suyjduses 02 anp you ase yeUA ysts;}pne Jo adse IIe sePN|IULL _» paureygo souapina jo uoneyaidsequistus pue ‘parser ojdwes aup ul s4owe azyu80991 03 aanyre}‘saunpazoid ypne ayeqidosddeut so uoneot|dde ‘se yons sJowsa uewny Jo asne2aq suonDesueN {yo sse[ J0 20Ue|eq juNoaDe Ue jnoge suoIsN|>uOD 1391J09U esp Aew JOMIpne aya Ie YSH ap OVSH—}24 A SIE DNITGINVS-NON «> payeyssjw Ajjetiayew ious] 1un029e 249 “souIpne ayy 03 UMOLYUN ‘vay parerssiul ‘Ajeuayew st 2auejeq yunoade papio2as e yeu} UoIsn|sUOD au sOddns ajdues e EU YS AL ys)x@ JOU Sop 1U9WEIeISS|WL ons 39e; uy uaymn voRDEsUeN Jo SsefD 40 aauEjeq IUNoDde UE UI JSIKO UDWAyEYSSIW JeUaTeLL Yo 204 sop 113904 UI Lay sysHK9 JO.I9 jeLIEYeW e reLA aph>uoD [I JOUPNE aya UA HSH YL Oisiy 1 @dAL/ysty e4diy) UoRDa[ey FauOIU JO ySY “IN “uoluido syeudosdiseu1 ue 01 pea| 0) Ajay! 240W s! ue SS3NBALLORAA LIGNW SANE © paverssiu Ajewaxewy si qunoave ot JORIpne a4) 0} UMOUUN ‘vaym Parerss|U AeyereUs Jou s! aouejeq quno32e papsoda. &3e\A UoISN}2UOD tp soddns ajdwes eeu YSH 24R | six ‘seop quawayeyssiu jetioxew 1924 Ul UBYM Is!X@ JOU Sop WWAPEASSIW JeuayELU JEUA 40 SBOP 21 98) Ul UY ‘3S1K9 JOU SO JOM [eLJa1eW e re\p @pnypuod [Im JONPNe BYR ICUS SUL (ysnd 1 BdAL/jsry exag) aouerdassy 232100U] Jo ys “| 'S1S3L3AUNVISENS 40} “8 ypausoou! asam suotsnpuoD reniur eva ysiqeso 01 yom jeuotippe or pea Aifensn pinoM 3 se AQNBIDIHI LIOAY SIE © wnwixew ayy Mosq As! onuo> Buissasse suioddns uoneindod oip ul 2424 uoReIAap ans aly “JOMPNe ayp 03 UanoLA|UN ‘yayn ‘Uunupxeus aug ye ysts o.nuoD Bujssasse stioddns ayes uoNeinap ajdwes e3eY HSH UL & Uuodhn patio 2g eo pue aanoayja st joey Ul uaYPn ayqerjas st JosuOD [eUITU! ‘yp yeUp YO S! AjjemDe a] ueUA s2YTY 5! St [O.RUOD JeUN BpN/DUOD [IA ZOUPNE AYA Ie HSH UL # (su 1 adAL/sty eydiy/a2ueyauuapun Jo SIU) HOIH OOL YS4 JORUOD Buissasse JOGENERAL APPROACHES TO AUDIT SAMPLING A. STATISTICAL SAMPLING > isa sampling approach that v TABLE 11-2 Advantages and Disadvantages of Statistical Sampling Advantages: 1. itaids an auditor in determining the sample size required to meet given objectives 2. itprovides more objective audit evidence 3. itallows an auditor to measure precision, reliability and sampling error Disadvantages: 1. there is a danger of accepting statistical evidence at face value without sufficient skepticism 2. the cost of statistical sampling could exceed the benefits 3. may be less appropriate in some cases than non-statistical sampling or other audit procedures for gathering evidence B. NON-STATISTICAL SAMPLING * isa sampling approach that purely uses auditor's judgment in estimating sampling risks, determining sample size, and evaluating sample results ‘STATISTICAL SAMPLING I NON-STATISTICAL SAMPLING ] SIMILARITIES both methods are acceptable both approaches will require the use of auditor's judgment in Y designing and selecting the sample ¥ performing audit procedures evaluating the results both approaches cannot assure that the sample will be the representative of the population DIFFERENCE statistical sampling allows auditor to measure or quantify the sampling risk using mathematical formula. It helps the auditor to: Y design an efficient sample ¥ measure the sufficiency of evidence obtained objectively evaluate the sample results AUDIT SAMPLING PLANS > refer to the procedures an auditor applies to accomplish a sampling application. It aids an auditor in forming conclusions about one or more characteristics of either a particular class of transactions (test of controls) or a particular account balance (substantive tests) A. ATTRIBUTE SAMPLING + a sampling plan that used to estimate the frequency of occurrence ofa certain characteristic ina population (occurrence rate) i estimate the rate of deviations from prescribed internal control policies or procedures ._ VARIABLES SAMPLING ‘© sampling for variables in a sampling plan used to estimate @ numerical misstatement ofa population such as :0 estimate the amount of misstatements in the financial statements Page 3 of 12 Leah Salazar-Manalang, CPA, MM ‘Audit Sampling LCCfe oO, oo SAMPLING FOR TESTS OF CONTROLS .Buchas inquiries and observation would be more eppropriate- + DETEMINATION OF SAMPLE SIZE > there are three factors affectir ACCEPTABLE SAMPLING HICK = A. : The smaller the sampling risk the au be (and vice versa) K “Auditors specify the tolerable deviation rate based on: the determination of sample size for tests of controls: is willing to accept, the larger the sample size will (tolerable error) - the maximum rate of deviations the auditor is willing to accept, without modifying the planned degree of reliance on the internal control. The tolerable deviation . Therefore, the lower the rate of deviation that the auditor is willing to accept, the larger the sample size (and vice versa) 1) their planned assessed level of control risk. | 2). the degree of assurance desired from the evidential matter on the sample “The lower the planned assessed level of control risk (or the more assurance desired from the sample), the lower the tolerable deviation rate. ‘AICPA’s Sampling Guide for overlapping PLANNED ASSESSED LEVEL OF CONTROL RISK and the TOLERABLE DEVIATION RATE illustrate relationship between nges t PLANNED ASSESSED LEVEL OF CONTROL RISK _| TOLERABLE DEVIATION RATE Low 2% - 7% Moderate 6% - 12% Slightly below the maximum 1196 - 20% Maximum ‘omit test | C. EXPECTED DEVIATION RATE (expected error) — the rate of deviations the auditor expects to find in the population before the testing begins. The expected deviation rate has a DIRECT EFFECT on the sample Sie; 4 In estimating the expected deviation rate, the auditors often: 1), use the sample results from prior years, as documented in their working papers. 2). auditors may also estimate the rate based on their experience with similar tests on other audit engagements, or by examining a pilot example Factors relevant to the auditor's consideration of the expected error rate include: Y auditor's understanding of the business (in particular, procedures undertaken to obtain an understanding of the accounting and internal control systems) changes in personnel or in the accounting and internal control systems ¥ results of audit procedures applied in prior periods results of other audit procedures ‘Sample size Acceptable sampling Tolerable deviation Expected deviation risk rate rate SMALL HIGH HIGH Low LARGE Low Low HIGH ‘Audit Sampling Leah Salazar-Manalang, CPA, MM Page 4 of 12Ml. SAMPLE SELECTION METHOD. * the ausitor should select items for the sample with the expectation th: iat all sampling units in the population have a chance of selection, in which, the principal methods include: mn ‘A. RANDOM NUMBER SELECTION ¥ eachitem in the population hhas an EQUAL chance and nonzero probability of selectioh, v itis usually accomplished by or computer program and tracing them ti ‘the population itis appropriate for both statistical and non-statstical sampling B. SYSTEMATIC SELECTION the number of sampling units in the popul interval. |, Based on the computation: Population Sample size when using systematic selection, the auditor would need to determine that sampling unit within the Population are not structured in such a way that the sampling interval corresponds with a particular pattern in the population C. BLOCK SELECTION (or CLUSTER SAMPLING) ¥’ involves selecting a block(s) of contiguous items from within the population vit il i ling because most populations are structured such that ms in sequence can be expected to have similar characteristics to each other, but different characteristics from items elsewhere in the population although in some circumstances it may be an appropriate audit procedure to examine a block of items, i i i D. HAPHAZARD SELECTION v ¥ cause the auditor cannot measure the probability of an item being selected when using this method. Other techniques include: E. ATRRIBUTE ESTIMATION SAMPLING v Is appropriate when an auditor wishes to estimate a true but unknown population deviation rate uses a FIXED SAMPLING PLAN, i.e. the auditor tests a single sample F, SEQUENTIAL SAMPLING (also called stop-or-go sampling) Y can be used as an alternative form of testing controls when an auditor expects very few deviations within the population the sampling plan is performed in SEVERAL STEPS DISCOVERY SAMPLING ; a v ind when the auditor's objective is to find at least ONE DEVIATION in a sample if the actual population deviation rate exceeds or equals a predetermined critical rate (tolerable deviation rate) — Page 5 of 12 ‘Leah Salazar-Manalang, CPA, MM ‘Andit SamplingEVALUATION OF RESULTS 1. Determine the sample deviation rate — determin: 1's best estimate of the deviation rate in the le deviation rate — dé ji thi ‘ letermines the auditor's i jit i = number of deviations observed sample size 2. Determine the u fe eed Determine the upper devidtion rate and the allowance for sampling risk by using the following UPPER DEVIATION RATE SAMPLE DEVIATION + ALLOWANCE FOR: RATE SAMPLING RISK | 3. Compare upper deviation rate and the tolerable rate of deviation and evaluate the effectiveness of a control accordingly a. UNDER STATISTICAL SAMPLING PLAN: | itis implied that a control is effective and Upper deviation Tolerable deviation | rexu oa ge lesa a ie results would support assessing control risk BELOW THE MAXIMUM or 190% it would suggest that 4 control isnot effective an Upper deviation Tolerable deviation | the results would : fe ak 3 results would support assessing the control risk at MAXIMUM LEVEL OR 100% b, UNDER NONSTATISTICAL SAMPLING PLAN: [ Sampling « Tolerable or internal control is considered effective and would deviation SQ expected population | support assessing control risk BELOW MAXIMUM rate deviation rate [oof internal control is hot cbnsidered effective and Sampling Tolerable or therefore the auditor would assess control risk to devi ‘expected population be MAXIMUM, therefore more extensive a ‘GefBation rate’ substantive tests should be performed 4. Consider qualitative information such as evidence of deliberate manipulation or circumvention of internal control. The auditor considers each of the deviation’s nature, importance, and probable cause. ‘5, Reach an overall conclusion. The auditor must relate the assessed control risk to detection risk for each financial statement assertion. EXAMPLES OF FACTORS INFLUENCING SAMPLE SIZE FOR TESTS OF CONTROLS FACTOR EFFECT ON SAMPLE SIZE ‘an increase in the auditors intended reliance on accounting and internal control systems INCREASE an increase in the rate of deviation from the prescribed control procedure that the auditor is willing to accept (tolerable error) DECREASE aninerease in the rate of deviation from the prescribed control procedure that the auditor expects to find in the population (expected error) INCREASE anincrease in the auditor's required confidence level (or conversely, a decrease inthe risk that the auditor will conclude that the control risk is lower than the INCREASE acttial risk in the population) ease in the number of sampling units in the population NEGLIGIBLE EFFECT Tang, CPA MM. Page 6 of 12 ‘Audit Sampling Leah SalaSAMPLING FOR SUBSTANTIVE TESTS 8. TOLERABLE MISSTATEMENT - maximum amount of misstatement that the auditor: ‘and still be willing to conclude that the account balance is fairly stated, there is an INVERSE RELATIONSHIP between the tolerable misstatement and the sample size. A smaller > audit sampling is appropriate when performing tests of details to estimate the amount of misstatements in the financial statements DETERMINATION OF SAMPLE SIZE > when determining sample size for substantive tests, the following factors must be considered ‘A. ACCEPTABLE SAMPLING RISK ¥ auditor should consider the components of audit risk there is an INVERSE RELATIONSHIP between acceptable sampling risk and the sample size; the lower the inherent, control and detection risks risk the auditor accepts, the larger the sample size will be ill permit in the population ‘measure of tolerable misstatement will cause the sample size to increase. C. EXPECTED MISSTATEMENT ~ the amount of misstatement that the auditor believes to exist in the population there is a DIRECT RELATIONSHIP between the expected misstatement and the sample size. An increase in the amount of misstatement that the auditor expects to be present in the population will cause the sample size to increase D. VARIATION INTHE POPULATION ¥ when using STATISTICAL SAMPLING, the variability is measured by the standard deviation ¥ sample size varies in the SAME DIRECTION as the variation in the population amounts. As population variati \creases, so does the sample size ‘SAMPLE SELECTION METHOD. A. STRATIFICATION v involves subdividing a population into subpopulations or strata, (i.e. a group of sampling units which have similar characteristics, often monetary value) strata must be explicitly defined so that each sampling unit can belong to only one stratum v this method enables the auditor to direct his efforts towards the items he considers would potentially contain the greater monetary error Y _is.useful to the auditor when performing substantive tests because: a. DECREASES the effect of variance in the population and, as a result, decreases the sample size b. allows the auditor to give MORE EMPHASIS to those items with higher monetary value "page 7 of 12 ‘Leah Salazar-Manalang, CPA,MM Audit Sampling —| B. PROBABILITY-PROPORTIONAL{TO-SIZE SAMPLING (PPS) | 1). sampling technique auditors use to estimate the maximum amount of overstatem amount with measurable level of risk of making decision error 2) also referred to as PESO-UNIT SAMPLING (PU) or CUMULATIVE MONETARY AMOU} ‘uses attribute sampling theory 3) PPS sampling gets a sme from the fact that the probability of an item’s being sel the sample is equal tots size in proportion to the size of the whole population. nt of a recorded psa (cma). lected for inclusion in | | [ADVANTAGES DISADVANTAGES | | increases the likelihood of including high peso- value items in the sample ‘assumption that the audited value of a sampling unit is neither|less than zero nor greater than the book consistent with the auditor's objective ue may not be allows audifors to compute the sample size and evaluate the results by hand or by means of tables i negative balance or zerp balances cannot be audited using PPS samy i easy to use| when misstatements afé found using PPS sampling, the upper mi be too high to be usefi stement limit may ‘enables the auditor to state conclusion in a peso amount ' | sampLE =| =|‘ Bookvalue x factor for rit | SIZE | Tolerable e Anticipated =~ Misstatement (TM) Misstatement (AM) where: av ve to-accept. The formulais: the|recorded book value of the population being tested | determined using a table from AICPA Accounting and Audit Gu incorrect acceptance and the equation to determine the factor! the INITIAL SAMPLE SIZE for a PPS sample may be determined by using the following equation of overstatement (RF) Expansion factor for for anticipated misstatement (EF) ide, for the level of risk of for ‘the risk the auditor i RISK OF INCORRECT == isk (AF | ‘ACCEPTANCE (TD) Inherent Risk (IR) x Control Risk (CR) x] Analytical Proc Risk (AP) | i i PPS SAMPLING: Reliability Factors for Overstatements (Partial) [ RISK OF INCORRECT ACCEPTANCE. ( 5% 10% 15% 20% 25% ree 3.00 231 1.90 161 1.39 FACTOR Leah Salazar-Manalang, CPA, MM. ‘Auglit Sampling a) Page 8 of 12TM: __ tolerable misstatement is an auditor's planned level of materiality for an account balance or class of transaction AM: Anticipated or Expected Misstatement is the auditor's preliminary estimate of the amount misstatement contained in the population. It is usually based on the auditor's. past experience with and the knowledge of the client. fe Expansion Factor is used only when the auditor anticipates finding misstatements in the sample. This is obtainable from the 1983 AICPA Accounting and audit Guide PPS SAMPLING: Expansion Factors for Anticipated Misstatements RISK OF INCORRECT ACCEPTANCE 5% 10% 15% 20% 25% RELIABILITY Picton 16 15 14 13 1.25 + Achange in any of the component of the sample size equation while the others held constant will have the following effect on the sample size: ‘COMPONENT RELATIONSHIP TO SAMPLE SIZE ‘Book value Direct Risk of incorrect acceptance Inverse Tolerable misstatement Inverse Anticipated misstatement Direct Expansion Factor for anticipated misstatement Direct 1D. CLASSICAL VARIABLES SAMPLING + uses normal distribution theory to evaluate selected characteristics of a population on the basis of a sample items constituting population ‘VARIATIONS OF CLASSICAL VARIABLES SAMPLING: 1) MEAN-PER-UNIT ESTIMATION ~ A classical variables sampling technique that projects the sample average to the total population by multiplying the sample average by the number of items in the population. When using mean-per-unit estimation, auditors generally stratify the population to reduce the variations into homogenous subgroups i. determine audit values for each sample item. ii, calculate the average audit amount multiply this average audit amount times the number of units in the population to obtain estimated population value TS Audit Sampling Leah Salazar-Manalang, CPA, MM Page 9 of 12p Teed o 4 to detérmine SAMPLE SIZE: SAMPLE (A) = POPULATION SIZE(N) - ESTIMATEDPOPULATION) - STANDARD NORMAL STANDARD DEVIATION(Sy) _|FOR DESIRED RISK OF INCORRECT REJECTION (Up) DESIRED ALLOWANCE FOR SAMPLING RISK (A) + to determine DESIRED ALLOWANCE FOR SAMPLING RISK DESIRED ALLOWANCE = TOLERABLE MISSTATEMENT(TM) x RATIO OF DESIRED ALLOWANCE FOR SAMPLING RISK (A) FOR SAMPLING RISK TO | ‘TOLERABLE MISSTATEMENT (R) | 4+ to estimate POPULATION VALUE | ESTIMATED POPULATION = POPULATION SIZE(N) X AVERAGE VALUE OF ITEMS VALUE (X") IN THE SAM} LE (x) 4 to determine ACHIEVED ALLOWANCE FOR SAMPLING RISK ‘ACHIEVED ALLOWANCE = POPULATION SIZE (N) x FACTORRISKOF| x STANDARD ERROR FOR SAMPLING RISK (A’) INCORRECT REJECTIGN (Up) OF THE MEAN i ee | 4 to determine ESTIMATED RANGE FOR THE POPULATION VALUE - : i ESTIMATED RANGE | EXPECTED POPULATION x _ACHIEVED|ALLOWANCE OF POPULATION (P’) |, VALUE (X’) FORSAM LING RISK (A’) 2) DIFFERENCE ESTIMATION — a classic ] I variables sampling technique that uses the average difference between aicited amounts and individual recorded amounts to estimate the total audited amount of a population and an allowance for sampling risk. + SON will be used if the differenices between sample audit values and book values are a relatively constant peso amount 9 = determine audit values for each sample item + Yrecwce + edok Value - audtted valve calculate the difference between the audit value and book value for each sample item calculate the average difference 9) fwe Pigg > — Peprerntce / Hem th ho Same, determine the estimated population value by multiplying the average difference by the total Population units and adding or subtracting this value from the recgrded value ' WD. GAM ON ~ Thal Dippeance 3) RATIO ESTIMATION — a classical variables sampling technique that uses the ratio of audited amounts to recorded amounts in the sample to estimate the total peso amount of the pdpulation and an allowance for sampling risk. ° i. will be used if the differences are a constant percentage book values determine audit values for each sample item calculate the ratio between the sum of sample audit values and sample book values determine the estimated population value by multiplying the total population book value times this ratio Stee + Deluca ane ae Pid APH valu orate amyl / Total by ope Cane Delunngae she UHimahd audited vaIve Le patio < v | fort ation ‘Manalang, CPA, MM Page 10 of 12IV. _ EVALUATION OF RESULTS PROBABILITY-PROPORTIONAL-TO-SIZE SAMPLING the procedure for evaluating the results depends on whether overstatement errors are found in the sample ‘A. If NO ERRORS are found in the sample, then the projected misstatements is ZERO, and the allowance for ‘sampling risk is no more than the tolerable error. Therefore, the UPPER MISSTATEMENT LIMIT is less than or equal the tolerable error + B. If the OVERSTATEMENT ERRORS are found where the recorded book value exceeds the audited value, the auditor computes for the projected misstatement on projected population errors and the allowance for sampling risk. UPPER MISSTATEMENT = PROJECTED + BASICPRECISION + INCREMENTAL ALLOWANCE uit ‘MISSTATEMENT J ALLOWANCE FOR SAMPLING RISK PROJECTED MISSTATEMENT — auditor's best estimate of the amount of misstatement in the population. To compute projected misstatement, the auditor may follow this guideline: % Forlogical sampling units less than the sampling interval: PROJECTED MISSTATEMENT = BOOK VALUE - AUDITED VALUE x SAMPLING INTERVAL BOOK VALUE For logical sampling units greater than or equal to the sampling interval PROJECTED MISSTATEMENT = BOOKVALUE - AUDITED VALUE EXAMPLES OF FACTORS INFLUENCING SAMPLE SIZE FOR SUBSTANTIVE PROCEDURES FACTOR EFFECT ON SAMPLE SIZE an increase in the auditor's assessment of inherent risk INCREASE an increase in the auditor's assessment of control risk INCREASE an increase in the use of other substantive procedures directed at the same financial statement assertion DECREASE an increase in the auditor's required confidence level (or conversely, a decrease in the risk that the auditor will conclude that a material error does not exist, when in fact it does exist) INCREASE arigcrease in the total error that the auditor is willing to accept (tolerable error) DECREASE an increase in the‘amount of error the auditor expects to find in the population (expected error) INCREASE stratification of the population when appropriate DECREASE the number of sampling units in the population NEGLIGIBLE EFFECT ‘Audit Sampling Leah Salazar-Manalang, CPA, MM Page 11 of 12 eeSTEPS IN ATTRIBUTE SAMPLING PLAN AND VARIABLES SAMPLING PLAN "ATTRIBUTE SAMPLING PLAN VARIABLES SAMPLING PLAN 1 Define the objective of the plan TL. Determine the objectives of the test | 7 the auditor should clearly state what is to be ¥ the auditor's objective Is to test the reasonableness accomplished 4 of a recorded account balance, called HYPOTHESIS TESTING 2, Pefine the population | 2, Define the population andl the sampling unit for example, iftHe auditor's objective is to test 'Y for example, the pofulation might consists of 1,000 | controls designed to assure that all shipped goods accounts receivable With a reported book value of |s® are invoiced, the population would be defined as all Php1,500,000 shipping documents issued during the period, not all sales invoices | Define the attribute ahd defiation conditions '3. Choose an audit sampling technique ¥ ATTRIBUTE ~ is alcharatterstic of contrat ¥ Statistical vs. Nonstatistical ¥__ DEVIATION ~ absence of an attribute Classical tip vs, Probability-to- Ea Proportional Size Sarppling 4, Determine the sample size 4, Determine the sample si |The sample size is determined by considering the ‘¢ the auditor considers the following | following factors: variation within the population | ¥ isk of assessing Control risk too low acceptable risk of incorrect rejection | % tolerable deviation rate acceptable risk of incorrect acceptance expected population deviation rate ¥_ tolerable e' '5. Determine the method of sample selection 5. Determine the method of sample selection \Y random number selection ¥ random number selettion kr systematic selection systematic selection |v haphazard selection (applies only to non-statistical haphazard selection (applies only to non-+ sampling) sampling), 7 _value weightéd'selection 6. Perform the sampling = \ form the sampling plan h sampling units selected should be examined for the , ributes of interest and-déviations should be ape if} — documented in the wotking papers i f l i “)7 Evaluate the sample results | 7. Evaluate the sample results| VV. determining sample deviation rate projecting the: ste to the population determining maximum population deviation rate Y considering sampling Fisk VV: considering qualitative information | considering qualitative information reaching an overall conclusion 7_ reaching an overall cdnclusion sou cee Assurance Principles, neo feo, ames 16th ed ‘Act Theory, kl Salosages et a 20t1ed Theory CPA Examinatibn Relewer, Gerardo Roque, 2012-2013 ed Publi Acountancy Profession Ma. Elena Balathal- Cabra 2012-2014 ed. (PAR Review Materials AT-7408 . sas: Leah Salazar-Manalang, CPA, MM Page 12 of 12