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CPA-Audit 3-Ver 3.2-Sampling: Shradha Ghosh

This document discusses audit sampling, which involves testing less than 100% of items in a population to evaluate its characteristics. There are two main types - attribute sampling for testing controls and variable sampling for detecting material misstatements. Sampling risk is the risk that the sample is not representative of the population. The main sampling risks are alpha risk of falsely identifying a problem and beta risk of failing to identify an existing problem. Attribute sampling focuses on yes/no questions while variable sampling estimates population values and precision intervals. Tolerable deviation and misstatement rates are key considerations in forming sampling conclusions.

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52 views8 pages

CPA-Audit 3-Ver 3.2-Sampling: Shradha Ghosh

This document discusses audit sampling, which involves testing less than 100% of items in a population to evaluate its characteristics. There are two main types - attribute sampling for testing controls and variable sampling for detecting material misstatements. Sampling risk is the risk that the sample is not representative of the population. The main sampling risks are alpha risk of falsely identifying a problem and beta risk of failing to identify an existing problem. Attribute sampling focuses on yes/no questions while variable sampling estimates population values and precision intervals. Tolerable deviation and misstatement rates are key considerations in forming sampling conclusions.

Uploaded by

Murthy
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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CPA-Audit 3-ver 3.

2-Sampling

Shradha Ghosh
Sampling
Audit Sampling
– Objective-Obtain Sufficient Appropriate Audit
Evidence (SAAE)
– Meaning- is the testing of < 100% of the items
(within an account balance or class of
transactions) to evaluate some characteristic of
the balance or class
– Assumption is that the sample is representative of
the population.
– Example-BSE index S P
Shradha Ghosh
Sampling Risk
(Inherent risk in sampling)
• Risk that the sample is NOT representative of
the population

AND

• That the auditor’s conclusion will be different


from the conclusion reached had the auditor
examined 100% of the population
Shradha Ghosh
Sampling
• Rules

• Methods-Statistical vs. Non-statistical

• Types- Attribute Sampling (TOC) vs. Variables


Sampling (TOD)

• Types of risk-Sampling vs. Non sampling risk

Shradha Ghosh
SAMPLING RISK

The auditor will fail to The auditor may falsely


identify an existing identify a problem where
problem OR none exists
(BETA RISK) (ALPHA RISK)
HOW? HOW?

Assessing Assessing
Incorrect O
Incorrect O control risk control risk too
R
Acceptance R too low Rejection high
(Overreliance) (Underreliance)

MAKES THE AUDIT INEFFECTIVE MAKES THE AUDIT INEFFICIENT


Variable √ √
Sampling
Attribute √ √
Sampling
Opinion Wrong (Auditor concern) Right
Work done Less than required More than required
Shradha Ghosh
Beta Risk (auditor’s main concern)
 Auditor’s usually accept a risk of 5% or 10%

 This means the confidence level is 95% or 90%

 i.e. the auditor is 95% (or 90%) confident that


the sample is representative of the population

 i.e. Risk of being ineffective + Confidence


level=100%
Shradha Ghosh
ATTRIBUTE SAMPLING VARIABLE SAMPLING/ESTIMATION SAMPLING
PURPOSE Estimate the rate (%) of Estimate the $ value of the population
occurrence or deviation of a
specific characteristic (attribute)

OBJECTIVE To test the operating To detect Material Misstatement in the FS’s [Test
effectiveness of controls [Test of of Details(TOD)]
Controls (TOC)]

METHODS Generally deals with YES/NO Computing a point estimate of a population and a
questions precision interval (allowance for sampling risk)
around this point estimate
PLANNING  Tolerable Deviation Rate (TDR)  Tolerable Misstatement
CONSIDERATION  Auditor’s allowable level of  The auditor’s allowable risk of incorrect
assessing control risk too low acceptance (confidence) [Beta risk]
[Beta risk]
FORMING UDR < TDR = Rely  Projected Misstatement < Tolerable
CONCLUSIONS UDR > TDR=Do not rely Misstatement = Accept
[UDR=Upper Deviation Rate Projected Misstatement > Tolerable
=Sample Deviation rate +
Misstatement = Deny
allowable sampling risk]
TDR= Tolerable Deviation Rate [Projected Misstatement=Point estimate +/-
precision level (allowance for sampling risk)]
Qualitative consideration=error/fraud

Shradha Ghosh
Thank you

Shradha Ghosh

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