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PSA 530: AUDIT SAMPLING (Definitions (Tolerable misstatement – A monetary…
PSA 530: AUDIT SAMPLING
OBJECTIVE - to provide a reasonable basis for the auditor to draw conclusions about the population from which the sample is selected.
SCOPE - deals with the auditor’s use of statistical and non-statistical sampling when designing and selecting the audit sample, performing tests of controls and tests of details, and evaluating the results from the sample
AUDIT SAMPLING - The application of audit procedures to less than 100% of items within a population of audit relevance such that all sampling units have a chance of selection in order to provide the auditor with a reasonable basis on which to draw conclusions about the entire population.
Sample Design, Size, and Selection of Items for Testing
b. Sample Size
i. Factors that influence sample size for test of controls:Increase in expectation of operating effectiveness of controls Increase in sample size
Increase in expected rate of deviation - Increase in sample size
Increase in how indicative sample results are to the actual deviation - Increase in sample size
Increase in tolerable rate of deviation - Decrease in sample size
Increase in number of sampling units in population - Negligible effect
ii. The following are examples of factors that influence sample size for test of details:
Increase in auditor’s assessment of risk of material misstatement - Increase in sample size
Increase in how indicative sample results are to the actual deviation - Increase in sample size
Increase in amount of misstatement the auditor expects to find in the population - Increase in sample size
Increase in the use of other substantive procedures - Decrease in sample size
Increase in tolerable misstatement - Decrease in sample size
Stratification of population when appropriate - Decrease in sample size
Number of sampling units in the population - Negligible effect
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a. Sample Design
ii. Auditor’s consideration includes the specific purpose to be achieved and the combination of audit procedures that is likely to best achieve that purpose
iii. Assessment of the expected rate of deviation based on the auditor’s understanding of the relevant controls.
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iv. In considering the characteristics of the population, determine which is appropriate between:A. Stratification
- dividing the population into discrete sub-populations which have an identifying characteristic
- Objective: reduce variability of items within each stratum and therefore allow sample size to be reduced without increasing sampling risk
- Result of audit procedures applied to a sample of items within a stratum can only be projected to the items that make up that stratum.
B. Value-weighted selection
- Identify the sampling unit as the individual monetary units that make up the population
- May be used in conjunction with the systematic method of sample selection and is most efficient when selecting items using random selection.
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Projecting Misstatements
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b. For test of controls - NO explicit projection of deviations is necessary since the sample deviation rate is also the projected deviation rate for the population as a whole.
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Definitions
Tolerable misstatement – A monetary amount set by the auditor in respect of which the auditor seeks to obtain an appropriate level of assurance that the monetary amount set by the auditor is not exceeded by the actual misstatement in the population.
Stratification – The process of dividing a population into sub-populations, each of which is a group of sampling units which have similar characteristics (often monetary value).
Statistical sampling – An approach to sampling that has the following characteristics:
(i) Random selection of the sample items; and
(ii) The use of probability theory to evaluate sample results, including measurement of sampling risk.
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Anomaly – A misstatement or deviation that is demonstrably not representative of misstatements or deviations in a population.
Non-sampling risk – The risk that the auditor reaches an erroneous conclusion for any reason not related to sampling risk.
Sampling risk – The risk that the auditor’s conclusion based on a sample may be different from the conclusion if the entire population were subjected to the same audit procedure.
Population – The entire set of data from which a sample is selected and about which the auditor wishes to draw conclusions.
Tolerable rate of deviation – A rate of deviation from prescribed internal control procedures set by the auditor in respect of which the auditor seeks to obtain an appropriate level of assurance that the rate of deviation set by the auditor is not exceeded by the actual rate of deviation in the population.