Audit Sampling Welcome to Week 5 of Managing Regulatory Compliance.
Audit Sampling Welcome to Week 5 of Managing Regulatory Compliance.
Reviewing the Introduction and Learning Outcomes on this page will orient you to this week’s topics and activities.
As auditors continue conducting field work, more areas may be uncovered that might contain misstatements. Auditors may use sampling to help fulfill the audit objectives and detect risks. When preparing an audit sample, auditors must properly plan the design and size of the sample to make sure it reaches the desired goals. In evaluating the sample, auditors rely on professional judgment to help determine whether there is efficient audit evidence and to determine the level of uncertainty.
This week, you will assess sampling and detection risks and evaluate the differences between classical variables sampling and PPS sampling.
Week 5 Application: Classical Variables Sampling vs. Probability-to-SizeSamplingChoosing the right sampling method to achieve the desired information requires anauditor’s judgment. Using the information presented in this document calculateRequirement 1, Requirement 2, and Requirement 3.Analyze your calculations and then write a one page paper on your analysis.Determine whether Anthony’s Orchard’s choice of PPS sampling is the mostsystematic approach and yields the desired results to satisfying their audit needs orwhether the audit needs would be best satisfied through classical variables sampling.Evaluate the difference between classical variables sampling and PPS sampling.PPS SamplingObjective of the TestThe object of the test is to determine Anthony’s Orchard’s audit needs. The object ofthis Application Assignment is to determine the reasonableness of the AccountsReceivable balance.Define the Target PopulationAnthony’s Orchard audit team identified Accounts Receivable as the target populationwith a balance of $1,000,000.Chose Sampling TechniqueAnthony’s Orchard audit team selected PPS. Evaluate their selection of PPS.Determine whether this choice informs the audit’s needs.Calculating Sample SizeDetermine the sample size of Anthony’s Orchard’s audit. Calculate the sampling sizeand the sample interval in the field provided based on the information in the auditbelow.Note:The Expansion Factor for risk at 5% of incorrect misstatements is 1.6. Withnumber of overstatements of (0) and risk of incorrect acceptance, the ReliabilityFactor is 3.Tolerable Misstatement™($40,000)Risk of incorrect Acceptance.05Expected misstatement($8,000)
Selecting a Sample MethodThe method Anthony’s Orchard chose for selecting the sample was systematic.Determine whether the classical variables sampling method would have been themore systematic choice to satisfy Anthony’s Orchard’s audit needs.Conducting Sample ProcedureAnthony’s Orchard conducted the sample procedure. As you work through thefollowing steps, determine whether the procedure yields the desired results.PPS Sampling ProcedureComplete the table below by calculating the Sampling Interval and the ProjectedMisstatement.Requirement 2: Calculate the Projected MisstatementsCalculate Sampling Size =Calculate Sample Interval =Requirement 1: Calculate the Sampling Size and the Sample IntervalCalculate the Sampling Size in order to calculate the Sample Interval.Book ValueAuditValueMisstatementTaintPercentSamplingIntervalProjectedMisstatement$125$100$2525%$12,000$1,000$11,000–$50$40$1020%
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