# SAMPLING FOR EFFECTIVE INTERNAL AUDITING. By Mwenya P. Chitalu CIA

Save this PDF as:

Size: px
Start display at page:

## Transcription

1 SAMPLING FOR EFFECTIVE INTERNAL AUDITING By Mwenya P. Chitalu CIA

2 EXPECTED PRESENTATION OUTCOMES Why Do Auditors Sample? Sampling Policy Statistical & Non-statistical Sampling Statistical Terminologies Statistical Sampling Plans External Auditing Standards Sample Selection Methods Illustrations

3 DEMYSTIFYING STATISTICAL SAMPLING The Principle (or Law) of Parsimony: That things are usually connected in the simplest or most economical way. Reducing ideas to small, easy-to-write symbols & saying a lot in a small area covered by a formula. Eliminate the Greek, Arabic & Roman language barrier in symbols & Formulae that mystify Mathematics or Statistics. Just like any other audit, Probe Statistical Assertions-Life can be made easy with appropriate sampling. If it cannot be measured, then it cannot be managed economically, efficiently, & effectively. Mathematics or statistics is commitment to logical thinking. It squeezes the most learning about the population from limited sample data.

4 WHY DO AUDITORS SAMPLE? International Standards for the Professional Practice of Internal Auditing: Guides Information should be: Sufficient, Reliable, Relevant & Useful Acknowledges Sampling Techniques in Evidence Acquisition Opinions are NOT ABSOLUTE GUARANTEE but REASONABLE ASSURANCE of Accuracy Proficiency & Due Professional Care Cost-Benefit Considerations: The Economy, Efficiency & Effectiveness, Corroborating Evidence for Control Processes & Account Balances

5 SAMPLING POLICY Written Policy Statement When to Sample? Who Should Sample? How to Sample? Inappropriate Uses for Sampling: When a Total is easily Audited Inquiry & Observation Procedures Analytical Procedures

6 STATISTICAL & NON-STATISTICAL SAMPLING Three Characteristics in Common: Both Require Auditor judgment in Planning, Implementing, & Evaluating the Sampling Plan Actual Audit Procedures Performed are the same Both Non-Statistical & Statistical Techniques are Permitted by the IPPF

7 STATISTICAL & NON-STATISTICAL SAMPLING Differences between Statistical & Non-statistical Sampling Sampling Risk is Controlled & Measurable Technical Training & Knowledge is Required Computer Accessibility

8 STATISTICAL & NON-STATISTICAL SAMPLING In Summary, the following should be addressed: What is the Internal Audit Department s Recommended Policy or Procedure? Is a Quantitative measure of Sampling Risk Desired? What is the relative Cost & Benefit of Statistical versus Nonstatistical Sampling? Is Technical Expertise Available? Is Computer Software Accessible or Expertise to Write a Program?

9 STATISTICAL TERMINOLOGIES Confidence Level (C): Is the Reliability Level or Degree of Belief in the Obtained Results. Measure of Central Tendency: Mean (µ): The arithmetic average of a set of numbers. Median: The halfway value of raw data arranged in numerical order from lowest to highest. Mode: The most frequently occurring value.

10 STATISTICAL TERMINOLOGIES Standard Deviation (σ): The statistical measurement of the variability of values in a sample (the square root of the variance). Range: The difference between the largest and smallest values of any group. Population (N): The total number of items from which the sample is drawn-it s the focus of interest comprising sampling units. Sampling Unit: Individual items making up a Population. Sample (n): Collection of sampling units on which audit procedures are performed.

11 STATISTICAL TERMINOLOGIES Logical Unit: Account or transaction selected to be sampled. Expected Population Deviation Rate (ρ): Estimate of the actual deviation rate in the population, usually based on prior experience, inquiries, and observations. Precision (P): An assumed amount of possible unknown or the range of allowable error. Tolerable Misstatement: The auditor s assessment of materiality with respect to the population. Upper Precision Limit: Upper limit on deviations expected in the population.

12 STATISTICAL TERMINOLOGIES Tainting: Percentage of misstatement in a logical unit in a PPS sample. Upper Misstatement Limit (UML): Estimated maximum misstatement existing in the population at a specified reliability in PPS sampling. Sampling Risk: Conclusions based on sample differing with conclusions that could be reached if the entire population were examined. Non-sampling risk: Drawing incorrect conclusion for reasons other than sampling due to poor judgment or failure to adhere to professional standards.

13 STATISTICAL SAMPLING Advantages Disadvantages May yield desired results from minimum number of items Yields quantified data Includes measures of sampling risk, confidence level, and precision Is adaptable to computer testing Lends credibility to audit conclusions/recommendations Can be costly and timeconsuming May require training and software costs May preclude experienced auditors insights

14 NON-STATISTICAL SAMPLING Advantages Disadvantages Flexibility Use of internal auditor s judgment Allows reasonable reliability at reasonable cost Results not statistically valid No objective measure of sampling risk provided Chance of wrong sample size Effectiveness depends upon auditor s skill

15 STATISTICAL SAMPLING PLANS 1. ATTRIBUTES SAMPLING (TESTS OF CONTROLS) Concerns binary, yes/no, or error/non-error populations It tests the effectiveness of controls. 2. VARIABLES SAMPLING (SUBSTANTIVE TESTS) Concerns monetary amounts & other measures. It assesses materially misstated account balances & THE PPS SAMPLING ( THE CAV SAMPLING) Concerns primary engagement objective of few overstatements & not understatement. Difference & Ratio Estimations may not be efficient.

16 EXTERNAL AUDITING STANDARDS Internal & External Audit Work Coordination & Recognition: Statement on Auditing Standards (SA) No. 39: Audit Sampling & SAS No. 47: Audit Risk & Materiality in Conducting an Audit AICPA. Audit Risk Model: Audit Risk = Inherent Risk x Control Risk x Detection Risk Audit Risk: Issuing unmodified opinion on financial statements that are materially misstated. Inherent Risk: Material misstatement occurring in the absence of appropriate controls. Control Risk: Controls ineffective & fails to prevent or detect material misstatement in a timely manner. Detection Risk: Substantive procedures failing to detect a material misstatement.

17 EXTERNAL AUDITING STANDARDS Sampling risk impacts the Efficiency & Effectiveness of an audit Components of Sampling Risk Audit Test Audit Efficiency Audit Effectiveness Tests of Controls Risk of Assessing Control Risk Too High (i.e., not depending upon effective controls) Risk of Assessing Control Risk Too Low (i.e., depending upon ineffective controls) Substantive Tests Risk of Incorrect Rejection (i.e., rejecting a materially correct balance) Risk of Incorrect Acceptance (i.e., accepting a materially incorrect balance) Statistical Term Alpha Risk ( ) Beta Risk ( β)

18 EXTERNAL AUDITING STANDARDS Non-sampling Risk The audit failing to detect an internal control weakness or material misstatement for reasons other than the fact that sampling was used. Application of an inappropriate audit procedure Failure to recognize an error condition Omission of an essential audit step Materiality: Amount of difference tolerated by the auditor & concluding the assertion tested as reasonable: Tolerable deviation rate for tests of control Tolerable misstatement for substantive testing Materiality is inversely related to sample size Materiality assessment must be a cost versus benefit decision

19 SAMPLE SELECTION METHODS Methods Appropriate for Both Statistical & Non-statistical Sampling: Simple Random Sampling: Items with equal chance of selection. Systematic Sampling: nth item selection with random start within the n interval. PPS uses systematic sampling. Methods Used Only for Non-statistical Sampling: Haphazard Selection: Selecting sample items without intentional bias. Block Selection: Audit of a group of contiguous transactions like delivery notes for March or invoices in a sequence. Block Amount: Whole amount is audited. Other Considerations in Sample Selection: Void Items: Select additional sampling units for voided items. Missing Items: Must be treated as an error condition- In attributes, control is not effective & in substantive testing, audited value is ZMK 0.00

20 ATTRIBUTE SAMPLING When to use. Size of sample (n) Statistical table specifications To estimate the number of times a certain characteristic may occur in a population Based on judgment about probability that errors (or other characteristics) will occur or based on statistical tables n = C2 ρq P 2 Population size (N) Confidence level (C) Precision (P) Expected rate of errors (ρ) &q=100-ρ

21 Attributes Sampling Illustrations ITEM ACCOUNTS RECEIVABLES AS AT 31ST DECEMBER Population Size of Accounts Receivable N 4,000 Accounts 2 Confidence Level 90% Confidence Coefficient C Tolerable Deviation Rate (TDR) 5% (Based on Prior Years of Findings or Pilot Sample) 4 Planned Risk of Assessing Control Risk Too Low (Beta Risk) β 5% 5 Planned Risk of Assessing Control Risk Too High (Alpha Risk) 10% 6 Desired Precision = Beta x TDR/Alpha P 2.50% 7 Sample Size n 204 Accounts 8 Expected Number of Errors (From Statistical Tables) 5 Assuming Control Procedures Anticipated Deviation Rate = Zero 0% Upper Precision Limit (UPL) from the Statistical Tables 1.50% (And is Less than Tolerable Deviation Rate=5%) 9 Assuming 2 Actual Control Procedure Errors: 2 Upper Precision Limit (from the Tables) UPL 3.20% 10 And UPL < ρ Conclusion??? 11 CONCLUSION Controls are Effective

22 Attributes Sampling Variations Stop-or-Go Sampling: The Auditor guards against selecting an unnecessarily large sample. Discovery Sampling: The Auditor targets discovering at least one deviation if the percentage of deviations in the population is at or above a specified level, e.g. Fraud, Substantial mistake or Compliance failure.

23 VARIABLES SAMPLING When to use. Size of sample (n) Statistical table specifications When size matters; e.g., amount of a discrepancy in monetary or weight terms n = C2 σ 2 P 2 Population size (N) Confidence level/coefficient (C) Precision (P) Standard deviation (σ)

24 Variables Sampling Illustration ITEM ACCOUNTS RECEIVABLES AS AT 31ST DECEMBER Recorded Amount of Accounts Receivable (N) RM 360,000 ZMK 2 Tolerable Misstatement TM 18,000 ZMK 3 Planned Risk of Incorrent Acceptance (Beta Risk) β 5% 4 Planned Risk of Incorrect Rejection (Alpha Risk) 10% 5 Number of Accounts Receivable (N) 4,000 Accounts 6 Estimated Population Standard Deviation 8.68 ZMK (Based on Prior Years of Findings or Pilot Sample) 7 Confidence Level 90% Confidence Coefficient C Desired Precision = Beta x TM/Alpha 9,000 ZMK 9 Precision per-item basis (Desired Precision/N) P 2.25 ZMK 7 Sample Size n 40 Accounts

25 Three Types of Variables Sampling Mean-per-unit Estimation: Estimates the total monetary amount of the population by calculating a sample mean & multiplying by the number of items in the population. Difference Estimation: Estimates the total error in the population. Useful only if population contains enough errors to generate a reliable sample estimate & the differences are not proportional to the book values. Ratio Estimation: Estimates the total monetary amount of the population by calculating the ratio between the audited & book values in the sample and using this ratio to make the estimate. Useful when differences between book & sample values are proportional to book values.

26 Variables Sampling: Mean-per-Unit Estimation Case example Population: 4,000 Accounts Total book value: ZMK 360, Sample size: 40 Accounts Sample book value: ZMK 3, Sample audit value: ZMK 3, Step 1: Calculate average audit value (i.e., mean-perunit value for audited samples). K3,400.00/40 = K85.00 / Account. Step 2: Multiply mean-per-unit value by number of accounts in the population. K ,000 Accounts = K340, Over-count = K20, (K340, K360,000.00)

27 Variables Sampling: Difference Estimation Case example Population: 4,000 Accounts Total book value: ZMK 360, Sample size: 40 Accounts Sample book value: ZMK 3, Sample audit value: ZMK 3, Step 1: Calculate average difference between audit value and book value for the sample. (K3, K3,600.00)/40 Accounts = (K5.00) Step 2: Determine the difference estimate for the population. (K5.00) 4,000 accounts = (K20,000.00) Step 3: Estimate actual value by adding the difference estimate and book value for the population. (K20,000.00) + K360, = K340, Book value is Overstated by K20,000.00

28 Variables Sampling: Ratio Estimation Case example Population: 4,000 Accounts Total book value: ZMK360, Sample size: 40 Accounts Sample book value: ZMK3, Sample audit value: ZMK 3, Step 1: Audit value for sample = K3, Step 2: Book value for sample = K3, Step 3: Find ratio of audit value to book value: K3, / K3, = 0.94 Step 4: Estimate actual population value by multiplying ratio by population book value: 0.94 K360, = K338, Book value is Overstated by K21,600.00

29 PROBABILITY-PROPORTIONAL-TO-SIZE (PPS) SAMPLING When to use Size of sample (n) (n1: AM=0, & n2: AM>=1) Statistical specifications When auditing. account balances for few overstated items; e.g., in inventory, receivables, disbursements, etc. n1 = RM x RF TM or n2 = Recorded Amount of the Account (RM) Reliability Factor (RF) Tolerable Misstatement (TM) Anticipated Misstatement (AM) Expansion Factor (EF) RM x RF TM (AM x EF)

30 PPS ILLUSTRATION ACCOUNTS RECEIVABLE AS AT 31ST DECEMBER Recorded Amt of A/C Receivables RM 360,000 Tolerable Misstatement TM 18,000 Anticipated Misstatement AM 0 Risk of Incorrect Acceptance 5% A/C No. AMT ZMK CUM AMT Kwacha Selected Sampling Unit Observed Amount Tainting % Sampling Interval Projected Misstatement ACT0001 9,450 9,450 9,000 9,450 7,875 * * 1,575 ACT ,930 ACT0003 2,800 12,730 ACT0004 5,106 17,836 ACT0005 2,100 19,936 18,000 2, % 9,000 9,000 ACT0006 8,000 27,050 27,000 8,000 8, , ACT4000 6, , ,000 6,000 4,500 25% 9,000 2,250 TOTAL 360,000 12,825 Basic Precision(SI x RF = K9,000 x 3) ZMK 27,000 Total Projected Misstatment ZMK 12,825 Allowance for Precision Gap Widening: ( ) x K9,000 ZMK 6,750 ( ) x K2,250 ZMK 1,238 Upper Misstatement Limit (UML)>TM ZMK 47,813 CONCLUSION Accounts Receivable Materially Overstated

31 CONCLUSION/RECOMMENDATIONS It is Concluded & Recommended that Internal Auditors comply with the Proficiency & Due Professional Care IIA Standards by Appropriate Application of both Statistical & Non Statistical Sampling to Reasonably Assure that Opinion Evidence is: Sufficient, Reliable, Relevant and Useful.

32 REFERENCES FOR FURTHER READING 1. Sampling for Internal Auditors: Text-based Self Study Course- The Institute of Internal Auditors by Barbara Apostolou, PhD, CPA, DABFA. 2. Internal Audit Practice-Part 1: The IIA s CIA Learning System by The Institute of Internal Auditors. 3. Internal Audit Practice-Part 1: Gleim CIA Review by Professor Irvin N. Gleim, PhD, CPA, CIA, CMA, CFM.

34 Confidence coefficient, C, Based on the Risk of Incorrect Rejection Risk of Incorrect Rejection Confidence Level Confidence Coefficient 20% 80% % 90% % 95% % 99% 2.58

35 Attributes Sample Size Statistical Tables For Tests of Controls Five Percent (5%) Risk of Assessing Control Risk Too Low (Number of Expected Errors in parentheses) Expected. Population Deviation Rate (%) Tolerable Deviation Rate 2% 3% 4% 5% 6% 7% 8% 9% 10% 15% 20% (0) 99(0) 74(0) 59(0) 49(0) 42(0) 36(0) 32(0) 29(0) 19(0) 14(0) (1) 157(1) 117(1) 93(1) 78(1) 66(1) 58(1) 51(1) 46(1) 30(1) 22(1) 0.50 * 157(1) 117(1) 93(1) 78(1) 66(1) 58(1) 51(1) 46(1) 30(1) 22(1) 0.75 * 208(2) 117(1) 93(1) 78(1) 66(1) 58(1) 51(1) 46(1) 30(1) 22(1) 1.00 * * 156(2) 93(1) 78(1) 66(1) 58(1) 51(1) 46(1) 30(1) 22(1) 1.25 * * 156(2) 124(2) 78(1) 66(1) 58(1) 51(1) 46(1) 30(1) 22(1) 1.50 * * 192(3) 124(2) 103(2) 66(1) 58(1) 51(1) 46(1) 30(1) 22(1) 1.75 * * 227(4) 153(3) 103(2) 88(2) 77(2) 51(1) 46(1) 30(1) 22(1) 2.00 * * * 181(4) 127(3) 88(2) 77(2) 68(2) 46(1) 30(1) 22(1) 2.25 * * * 208(5) 127(3) 88(2) 77(2) 68(2) 61(2) 30(1) 22(1) 2.50 * * * * 150(4) 109(3) 77(2) 68(2) 61(2) 30(1) 22(1) 2.75 * * * * 173(5) 109(3) 95(3) 68(2) 61(2) 30(1) 22(1) 3.00 * * * * 195(6) 129(4) 95(3) 84(3) 61(2) 30(1) 22(1) 3.25 * * * * * 148(5) 112(4) 84(3) 61(2) 30(1) 22(1) 3.50 * * * * * 167(6) 112(4) 84(3) 76(3) 40(2) 22(1) 3.75 * * * * * 185(7) 129(5) 100(4) 76(3) 40(2) 22(1) 4.00 * * * * * * 146(6) 100(4) 89(4) 40(2) 22(1) 5.00 * * * * * * * 158(8) 116(6) 40(2) 30(2) 6.00 * * * * * * * * 179(11) 50(3) 30(2) 7.00 * * * * * * * * * 68(5) 37(3)

36 Attributes Sample Evaluation Tables For Tests of Controls Upper Limits at Five Percent (5%) Risk of Assessing Control Risk Too Low Sample Size. Actual Number of Deviations Found * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

37 . Reliability Factors (RF) for Overstatements Number of Overstatements Risk of Incorrect Acceptance 1% 5% 10% 15% 20%

38 PPS Sampling Expansion Factors For Expected Misstatements. Risk of Incorrect Acceptance (%) Expansion Factor

### Auditing and Attestation Exam Review. Audit Sampling. Chapter Seven. Black CPA Review Chapter 7

Audit Sampling Chapter Seven Black CPA Review www.blackcpareview.com Chapter 7 Objectives: Objective 1: Understand sampling basics Objective 2: Understand sampling risk Objective 3: Understand attribute

### CHAPTER 8 SPECIALIZED AUDIT TOOLS: SAMPLING AND GENERALIZED AUDIT SOFTWARE

A U D I T I N G A RISK-BASED APPROACH TO CONDUCTING A QUALITY AUDIT 9 th Edition Karla M. Johnstone Audrey A. Gramling Larry E. Rittenberg CHAPTER 8 SPECIALIZED AUDIT TOOLS: SAMPLING AND GENERALIZED AUDIT

### Audit Sampling. AU Section 350 AU 350.05

Audit Sampling 2067 AU Section 350 Audit Sampling (Supersedes SAS No. 1, sections 320A and 320B.) Source: SAS No. 39; SAS No. 43; SAS No. 45; SAS No. 111. See section 9350 for interpretations of this section.

### Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Audit Sampling for Tests of Controls and Substantive Tests of Transactions Chapter 15 2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 15-1 Learning Objective 1 Explain the concept

### STUDY UNIT SEVEN AUDIT SAMPLING

STUDY UNIT SEVEN AUDIT SAMPLING 217 (23 pages of outline) 7.1 Fundamentals of Probability................................................ 217 7.2 Statistics...............................................................

### Audit Sampling 101. BY: Christopher L. Mitchell, MBA, CIA, CISA, CCSA Cmitchell@KBAGroupLLP.com

Audit Sampling 101 BY: Christopher L. Mitchell, MBA, CIA, CISA, CCSA Cmitchell@KBAGroupLLP.com BIO Principal KBA s Risk Advisory Services Team 15 years of internal controls experience within the following

### INTERNATIONAL STANDARD ON AUDITING 530 AUDIT SAMPLING AND OTHER MEANS OF TESTING CONTENTS

INTERNATIONAL STANDARD ON AUDITING 530 AUDIT SAMPLING AND OTHER MEANS OF TESTING (Effective for audits of financial statements for periods beginning on or after December 15, 2004) CONTENTS Paragraph Introduction...

### Accounting 408 Test 3a Section Row

Accounting 408 Test 3a Name Section Row I. Multiple Choice. (2.5 points each) Read the following questions carefully and indicate your one best answer to the questions by placing an X over the appropriate

### INTERNATIONAL STANDARD ON AUDITING (UK AND IRELAND) 530 AUDIT SAMPLING AND OTHER MEANS OF TESTING CONTENTS

INTERNATIONAL STANDARD ON AUDITING (UK AND IRELAND) 530 AUDIT SAMPLING AND OTHER MEANS OF TESTING CONTENTS Paragraph Introduction... 1-2 Definitions... 3-12 Audit Evidence... 13-17 Risk Considerations

### SA 530 AUDIT SAMPLING. Contents. (Effective for audits of financial statements for periods beginning on or after April 1, 2009) Paragraph(s)

SA 530 AUDIT SAMPLING (Effective for audits of financial statements for periods beginning on or after April 1, 2009) Contents Introduction Paragraph(s) Scope of this SA... 1 2 Effective Date... 3 Objective...

### Chapter 11 Audit Sampling Concepts

Chapter 11 Audit Sampling Concepts Review Questions 11-1 A representative sample is one in which the characteristics of interest for the sample are approximately the same as for the population (that is,

### INTERNATIONAL STANDARD ON AUDITING 530 AUDIT SAMPLING

INTERNATIONAL STANDARD ON 530 AUDIT SAMPLING (Effective for audits of financial statements for periods beginning on or after December 15, 2009) CONTENTS Paragraph Introduction Scope of this ISA... 1 2

### A424: Chapter 15 Audit Sampling for Tests of Controls and Substantive Tests of Transactions

Preparation questions: A424: Chapter 15 Audit Sampling for Tests of Controls and Substantive Tests of Transactions 1. A sample is a sample in which the characteristics in the sample are approximately the

### STANDARD ON INTERNAL AUDIT (SIA) 5 SAMPLING *

STANDARD ON INTERNAL AUDIT (SIA) 5 SAMPLING * Contents Paragraph(s) Introduction... 1-2 Definitions... 3-9 Use of Sampling in Risk Assessment Procedures and Tests of Controls... 10-12 Design of the Sample...

### Audit Sampling. HKSA 530 Issued July 2009; revised July 2010

HKSA 530 Issued July 2009; revised July 2010 Effective for audits of financial statements for periods beginning on or after 15 December 2009 Hong Kong Standard on Auditing 530 Audit Sampling COPYRIGHT

### This subject is dealt with in ISA 530, Audit Sampling. The definition of audit sampling is:

RELEVANT TO ACCA QUALIFICATION PAPER F8 AND FOUNDATIONS IN ACCOUNTANCY PAPER FAU Audit sampling Paper F8, Audit and Assurance and Paper FAU, Foundations in Audit require students to gain an understanding

### Accounting 408 Exam 2 Chapters 4-6, E

Accounting 408 Exam 2 Chapters 4-6, E Name Row I. Multiple Choice. (2 points each, 92 points total) Read the following questions carefully and indicate the one best answer to each question by placing a

### SESSION 4 AUDIT EVIDENCE

SESSION 4 AUDIT EVIDENCE Learning objectives: List and describe audit procedures which used to gather audit evidence. Discuss the different sources of audit evidence. Understanding the auditor s competent

### Statistical Sampling in Auditing

Statistical Sampling in Auditing Ghanzov Jokovich g.j@erk.un.eu Sampling is a process of selecting a subset of a population of items for the purpose of making inferences to the whole population. Accounting

### Audit Risk and Materiality in Conducting an Audit

Audit Risk and Materiality in Conducting an Audit 1647 AU Section 312 Audit Risk and Materiality in Conducting an Audit (Supersedes SAS No. 47.) Source: SAS No. 107. See section 9312 for interpretations

### GUIDANCE NOTE ON SAMPLING METHODS FOR AUDIT AUTHORITIES (UNDER ARTICLE 62 OF REGULATION (EC) NO 1083/2006

Final version of 15/09/2008 EUROPEAN COMMISSION DIRECTORATE-GENERAL REGIONAL POLICY COCOF 08/0021/02-EN GUIDANCE NOTE ON SAMPLING METHODS FOR AUDIT AUTHORITIES (UNDER ARTICLE 62 OF REGULATION (EC) NO 1083/2006

### Communicating Internal Control Related Matters Identified in an Audit

Communicating Internal Control 1843 AU Section 325 Communicating Internal Control Related Matters Identified in an Audit (Supersedes SAS No. 112.) Source: SAS No. 115. Effective for audits of financial

### Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained

Performing Audit Procedures in Response to Assessed Risks 1781 AU Section 318 Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained (Supersedes SAS No. 55.)

### 1 (a) Audit strategy document Section of document Purpose Example from B-Star

Answers Fundamentals Level Skills Module, Paper F8 (IRL) Audit and Assurance (Irish) June 2009 Answers 1 (a) Audit strategy document Section of document Purpose Example from B-Star Understanding the entity

### IS Audit and Assurance Guideline 2208 Sampling

IS Audit and Assurance Guideline 2208 Sampling The specialised nature of information systems (IS) audit and assurance and the skills necessary to perform such engagements require standards that apply specifically

### Auditing Standard ASA 530 Audit Sampling

ASA 530 (October 2009) Auditing Standard ASA 530 Issued by the Auditing and Assurance Standards Board Obtaining a Copy of this Auditing Standard This Auditing Standard is available on the Auditing and

### INTERNATIONAL STANDARD ON AUDITING 500 AUDIT EVIDENCE CONTENTS

INTERNATIONAL STANDARD ON AUDITING 500 AUDIT EVIDENCE (Effective for audits of financial statements for periods beginning on or after December 15, 2009) CONTENTS Paragraph Introduction Scope of this ISA...

### U S I N G D A T A A N A L Y S I S T O M E E T T H E R E Q U I R E M E N T S O F R I S K B A S E D A U D I T I N G S T A N D A R D S

U S I N G D A T A A N A L Y S I S T O M E E T T H E R E Q U I R E M E N T S O F R I S K B A S E D A U D I T I N G S T A N D A R D S A C a s e W a r e I D E A R e s e a r c h R e p o r t CaseWare IDEA Inc.

### INTERNATIONAL STANDARD ON AUDITING (UK AND IRELAND) 520 ANALYTICAL PROCEDURES CONTENTS

INTERNATIONAL STANDARD ON AUDITING (UK AND IRELAND) 520 ANALYTICAL PROCEDURES CONTENTS Paragraph Introduction... 1-3-4 Nature and Purpose of Analytical Procedures... 4-7 Analytical Procedures as Risk Assessment

### INTERNATIONAL STANDARD ON AUDITING 400 RISK ASSESSMENTS AND INTERNAL CONTROL CONTENTS

INTERNATIONAL STANDARD ON 400 RISK ASSESSMENTS AND INTERNAL CONTROL (This Standard is effective, but will be withdrawn when ISA 315 and 330 become effective) * CONTENTS Paragraph Introduction... 1-10 Inherent

### Mc Graw Hill Education

Principles of Auditing & Other Assurance Services Twentieth Edition 0. Ray Whittington CIA, CMA, CPA DePaul University Kurt Pany CFE, CPA Arizona State University Mc Graw Hill Education Contents Preface

### (Effective for audits of financial statements for periods beginning on or after December 15, 2009) CONTENTS

INTERNATIONAL STANDARD ON 200 OVERALL OBJECTIVES OF THE INDEPENDENT AUDITOR AND THE CONDUCT OF AN AUDIT IN ACCORDANCE WITH INTERNATIONAL STANDARDS ON (Effective for audits of financial statements for periods

### Data Analysis and Sampling

Data Analysis and Sampling About This Course Course Description In order to perform successful internal audits, you must know how to reduce a large data set down to critical subsets based on risk or importance,

### Descriptive Statistics

Descriptive Statistics Primer Descriptive statistics Central tendency Variation Relative position Relationships Calculating descriptive statistics Descriptive Statistics Purpose to describe or summarize

### Working Paper No. 51/00 Current Materiality Guidance for Auditors. Thomas E. McKee. Aasmund Eilifsen

Working Paper No. 51/00 Current Materiality Guidance for Auditors By Thomas E. McKee Aasmund Eilifsen SNF-project No. 7844: «Finansregnskap, konkurs og revisjon The project is financed by the Norwegian

### INTERNATIONAL STANDARD ON AUDITING 330 THE AUDITOR S PROCEDURES IN RESPONSE TO ASSESSED RISKS CONTENTS

INTERNATIONAL STANDARD ON AUDITING 330 THE AUDITOR S PROCEDURES IN RESPONSE TO ASSESSED RISKS (Effective for audits of financial statements for periods beginning on or after June 15, 2006) CONTENTS Paragraph

### INTERNATIONAL STANDARD ON AUDITING (UK AND IRELAND) 330 THE AUDITOR S PROCEDURES IN RESPONSE TO ASSESSED RISKS

INTERNATIONAL STANDARD ON AUDITING (UK AND IRELAND) 330 THE AUDITOR S PROCEDURES IN RESPONSE TO ASSESSED RISKS (Effective for audits of financial statements for periods beginning on or after 15 June 2006)

### Risks (Audit Risk Formula)

Risks (Audit Risk Formula) Component of Audit Risk Inherent risk Errors likely to occur In client s financial statements Control risk Detection risk Audit risk Errors not detected by controls Errors that

### [300] Accounting and internal control systems and audit risk assessments

[300] Accounting and internal control systems and audit risk assessments (Issued March 1995) Contents Paragraphs Introduction 1 12 Inherent risk 13 15 Accounting system and control environment 16 23 Internal

### 10-1. Auditing Business Process. Objectives Understand the Auditing of the Enteties Business. Process

10-1 Auditing Business Process Auditing Business Process Objectives Understand the Auditing of the Enteties Business Process Identify the types of transactions in different Business Process Asses Control

### Analytical Procedures

Analytical Procedures 1889 AU Section 329 Analytical Procedures (Supersedes section 318.) Source: SAS No. 56; SAS No. 96. Effective for audits of financial statements for periods beginning on or after

### Comparison of ISA 330 with AS-402 Objectives and Requirements Only

Comparison of ISA 330 with AS-402 Objectives and Requirements Only International Standard on Auditing 330 (Redrafted): The Auditor s INTRODUCTION Scope of this ISA 1. This International Standard on Auditing

### Accounting 408 Test 3b Section Row

Accounting 408 Test 3b Name Section Row Multiple Choice. (2 points each) Read the following questions carefully and indicate the one best answer to each question by placing an X (do not circle) over the

### Northumberland Knowledge

Northumberland Knowledge Know Guide How to Analyse Data - November 2012 - This page has been left blank 2 About this guide The Know Guides are a suite of documents that provide useful information about

### MANUAL AUDIT SAMPLING

MANUAL AUDIT SAMPLING Sampling is the application of an audit procedure to less than 100% of the items within an account balance or class of transactions for the purpose of evaluating some characteristic

### Content Sheet 7-1: Overview of Quality Control for Quantitative Tests

Content Sheet 7-1: Overview of Quality Control for Quantitative Tests Role in quality management system Quality Control (QC) is a component of process control, and is a major element of the quality management

### CHINHOYI UNIVERSITY OF TECHNOLOGY

CHINHOYI UNIVERSITY OF TECHNOLOGY SCHOOL OF NATURAL SCIENCES AND MATHEMATICS DEPARTMENT OF MATHEMATICS MEASURES OF CENTRAL TENDENCY AND DISPERSION INTRODUCTION From the previous unit, the Graphical displays

### INTERNATIONAL STANDARD ON AUDITING (UK AND IRELAND) 200

INTERNATIONAL STANDARD ON AUDITING (UK AND IRELAND) 200 OVERALL OBJECTIVES OF THE INDEPENDENT AUDITOR AND THE CONDUCT OF AN AUDIT IN ACCORDANCE WITH INTERNATIONAL STANDARDS ON AUDITING (UK AND IRELAND)

### CHAPTER 5 PROFESSIONAL AUDITING STANDARDS AND THE AUDIT OPINION FORMULATION PROCESS

A U D I T I N G A RISK-BASED APPROACH TO CONDUCTING A QUALITY AUDIT 9 th Edition Karla M. Johnstone Audrey A. Gramling Larry E. Rittenberg CHAPTER 5 PROFESSIONAL AUDITING STANDARDS AND THE AUDIT OPINION

### Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement

Understanding the Entity and Its Environment 1667 AU Section 314 Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement (Supersedes SAS No. 55.) Source: SAS No. 109.

### IAASB Main Agenda (September 2005) Page Agenda Item. ISA 330 (Redrafted) THE AUDITOR S PROCEDURES IN RESPONSE TO ASSESSED RISKS CONTENTS

IAASB Main Agenda (September 2005) Page 2005 1853 Agenda Item 4-D ISA 330 (Redrafted) THE AUDITOR S PROCEDURES IN RESPONSE TO ASSESSED RISKS INTRODUCTION CONTENTS Paragraph Scope of this ISA... 1 Effective

### Chapter 5 Overview of the Audit Process

Chapter 5 Overview of the Audit Process 1 existence or occurrence The existence or occurrence assertion deals with whether assets or liabilities exist at a given date and whether recorded transactions

### Means, standard deviations and. and standard errors

CHAPTER 4 Means, standard deviations and standard errors 4.1 Introduction Change of units 4.2 Mean, median and mode Coefficient of variation 4.3 Measures of variation 4.4 Calculating the mean and standard

### INTERNATIONAL STANDARD ON AUDITING 520 ANALYTICAL PROCEDURES CONTENTS

INTERNATIONAL STANDARD ON AUDITING 520 ANALYTICAL PROCEDURES (Effective for audits of financial statements for periods beginning on or after December 15, 2009) CONTENTS Paragraph Introduction Scope of

### INTERNATIONAL STANDARD ON ASSURANCE ENGAGEMENTS 3000 ASSURANCE ENGAGEMENTS OTHER THAN AUDITS OR REVIEWS OF HISTORICAL FINANCIAL INFORMATION CONTENTS

INTERNATIONAL STANDARD ON ASSURANCE ENGAGEMENTS 3000 ASSURANCE ENGAGEMENTS OTHER THAN AUDITS OR REVIEWS OF HISTORICAL FINANCIAL INFORMATION (Effective for assurance reports dated on or after January 1,

### Communicating Internal Control Related Matters Identified in an Audit

Communicating Internal Control Related Matters 227 AU-C Section 265 Communicating Internal Control Related Matters Identified in an Audit Source: SAS No. 122; SAS No. 125; SAS No. 128. See section 9265

### THE AUDITOR S RESPONSES TO ASSESSED RISKS

SINGAPORE STANDARD ON AUDITING SSA 330 THE AUDITOR S RESPONSES TO ASSESSED RISKS This revised Singapore Standard on Auditing (SSA) 330 supersedes SSA 330 The Auditor s Procedures in Response to Assessed

### INTERNATIONAL STANDARD ON AUDITING 200 OBJECTIVE AND GENERAL PRINCIPLES GOVERNING AN AUDIT OF FINANCIAL STATEMENTS CONTENTS

INTERNATIONAL STANDARD ON AUDITING 200 OBJECTIVE AND GENERAL PRINCIPLES GOVERNING (Effective for audits of financial statements for periods beginning on or after December 15, 2005. The Appendix contains

### INTERNATIONAL STANDARD ON AUDITING 330 THE AUDITOR S RESPONSES TO ASSESSED RISKS CONTENTS

INTERNATIONAL STANDARD ON AUDITING 330 THE AUDITOR S RESPONSES TO ASSESSED RISKS (Effective for audits of financial statements for periods beginning on or after December 15, 2009) CONTENTS Paragraph Introduction

### INTERNATIONAL STANDARD ON AUDITING 540 AUDIT OF ACCOUNTING ESTIMATES CONTENTS

INTERNATIONAL STANDARD ON AUDITING 540 AUDIT OF ACCOUNTING ESTIMATES (This Standard is effective, but contains conforming amendments that become effective at a future date) * CONTENTS Paragraph Introduction...

### STATEMENT OF AUDITING STANDARDS 300 AUDIT RISK ASSESSMENTS AND ACCOUNTING AND INTERNAL CONTROL SYSTEMS

STATEMENT OF AUDITING STANDARDS 300 AUDIT RISK ASSESSMENTS AND ACCOUNTING AND INTERNAL CONTROL SYSTEMS (Issued January 1997; revised January 2004) SAS 300 (revised January 04) Contents Paragraphs Introduction

### Chris Slaughter, DrPH. GI Research Conference June 19, 2008

Chris Slaughter, DrPH Assistant Professor, Department of Biostatistics Vanderbilt University School of Medicine GI Research Conference June 19, 2008 Outline 1 2 3 Factors that Impact Power 4 5 6 Conclusions

### Consideration of Fraud in a Financial Statement Audit

Consideration of Fraud in a Financial Statement Audit 1719 AU Section 316 Consideration of Fraud in a Financial Statement Audit (Supersedes SAS No. 82.) Source: SAS No. 99; SAS No. 113. Effective for audits

### HypoTesting. Name: Class: Date: Multiple Choice Identify the choice that best completes the statement or answers the question.

Name: Class: Date: HypoTesting Multiple Choice Identify the choice that best completes the statement or answers the question. 1. A Type II error is committed if we make: a. a correct decision when the

### ISA 200, Overall Objective of the Independent Auditor, and the Conduct of an Audit in Accordance with International Standards on Auditing

International Auditing and Assurance Standards Board Exposure Draft April 2007 Comments are requested by September 15, 2007 Proposed Revised and Redrafted International Standard on Auditing ISA 200, Overall

### INTERNATIONAL STANDARD ON AUDITING (UK AND IRELAND) 240 THE AUDITOR S RESPONSIBILITY TO CONSIDER FRAUD IN AN AUDIT OF FINANCIAL STATEMENTS CONTENTS

INTERNATIONAL STANDARD ON AUDITING (UK AND IRELAND) 240 THE AUDITOR S RESPONSIBILITY TO CONSIDER FRAUD IN AN AUDIT OF FINANCIAL STATEMENTS CONTENTS Paragraphs Introduction... 1-3 Characteristics of Fraud...

### HKSA 500 Issued July 2009; revised July 2010, May 2013, February 2015

HKSA 500 Issued July 2009; revised July 2010, May 2013, February 2015 Effective for audits of financial statements for periods beginning on or after 15 December 2009 Hong Kong Standard on Auditing 500

1666 K Street, NW Washington, D.C. 20006 Telephone: (202) 207-9100 Facsimile: (202) 862-8430 www.pcaobus.org REVIEW OF RISK ASSESSMENT STANDARDS THE AUDITOR'S CONSIDERATION OF MATERIALITY IN AUDIT PLANNING

### Insights into Large Audit Firm Sampling Policies

Volume 9, Issue 2 2015 Pages P7 P18 American Accounting Association DOI: 10.2308/ciia-51223 PRACTITIONER SUMMARY Insights into Large Audit Firm Sampling Policies Brant E. Christensen, Randal J. Elder,

### WEEK 6. Objective 1: Sales Transaction Cycle Risks

WEEK 6 CSA ch4 & GS ch10: pp457-488 Objective 1: Sales Transaction Cycle Risks The major assertions of interest to the auditor in ST of balances for account receivable are existence and valuation and allocation.

### Agenda. 1. Auditor s Objectives. 2. Assertions CEAVOP. 3. Audit Procedures. 4. Audit Evidence

Audit Evidence Agenda 1. Auditor s Objectives 2. Assertions CEAVOP 3. Audit Procedures 4. Audit Evidence Agenda 1. Auditor s Objectives 2. Assertions CEAVOP 3. Audit Procedures 4. Audit Evidence Auditor

### 4 Testing General and Automated Controls

4 Testing General and Automated Controls Learning Objectives To understand the reasons for testing; To have an idea about Audit Planning and Testing; To discuss testing critical control points; To learn

### [220] Materiality and the audit

[220] Materiality and the audit (Issued March 1995) Contents Paragraphs Introduction 1 3 Consideration of materiality 4 7 Materiality and audit work 8 11 Evaluating the effect of misstatements 12 14 Compliance

### Overall Audit Plan and Audit Program

Overall Audit Plan and Audit Program Chapter 13 2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder 13-1 Learning Objective 1 Use the five types of audit tests to determine whether

### The Confirmation Process

The Confirmation Process 1897 AU Section 330 The Confirmation Process (Supersedes section 331.03.08.) Source: SAS No. 67. Effective for audits of fiscal periods ending after June 15, 1992, unless otherwise

### Risk Assessment & Statistical Sampling. By D.Guha Statistical Adviser

Risk Assessment & Statistical Sampling By D.Guha Statistical Adviser Audit Risk Risk assessment is an analytical tool for audit planning and execution. It focuses on areas which are likely to be more error

### MCQ S OF MEASURES OF CENTRAL TENDENCY

MCQ S OF MEASURES OF CENTRAL TENDENCY MCQ No 3.1 Any measure indicating the centre of a set of data, arranged in an increasing or decreasing order of magnitude, is called a measure of: (a) Skewness (b)

### Biostatistics: DESCRIPTIVE STATISTICS: 2, VARIABILITY

Biostatistics: DESCRIPTIVE STATISTICS: 2, VARIABILITY 1. Introduction Besides arriving at an appropriate expression of an average or consensus value for observations of a population, it is important to

### STATISTICS FOR PSYCH MATH REVIEW GUIDE

STATISTICS FOR PSYCH MATH REVIEW GUIDE ORDER OF OPERATIONS Although remembering the order of operations as BEDMAS may seem simple, it is definitely worth reviewing in a new context such as statistics formulae.

### Chapter 14 Completing the Tests in the Sales and Collection Cycle: Accounts Receivable

Chapter 14 Completing the Tests in the Sales and Collection Cycle: Accounts Receivable Review Questions 14-1 Tests of details of financial balances are designed to determine the reasonableness of the balances

### Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards

Overall Objectives of the Independent Auditor 77 AU-C Section 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards Source:

### An Examination of an Entity s Internal Control Over Financial Reporting That Is Integrated With an Audit of Its Financial Statements

Examination of an Entity s Internal Control 1403 AT Section 501 An Examination of an Entity s Internal Control Over Financial Reporting That Is Integrated With an Audit of Its Financial Statements Source:

### Intro to Data Analysis, Economic Statistics and Econometrics

Intro to Data Analysis, Economic Statistics and Econometrics Statistics deals with the techniques for collecting and analyzing data that arise in many different contexts. Econometrics involves the development

### Standard Deviation Estimator

CSS.com Chapter 905 Standard Deviation Estimator Introduction Even though it is not of primary interest, an estimate of the standard deviation (SD) is needed when calculating the power or sample size of

### How to gather and evaluate information

09 May 2016 How to gather and evaluate information Chartered Institute of Internal Auditors Information is central to the role of an internal auditor. Gathering and evaluating information is the basic

### Hypothesis testing - Steps

Hypothesis testing - Steps Steps to do a two-tailed test of the hypothesis that β 1 0: 1. Set up the hypotheses: H 0 : β 1 = 0 H a : β 1 0. 2. Compute the test statistic: t = b 1 0 Std. error of b 1 =

### Modifications to the Opinion in the Independent Auditor s Report

Modifications to the Opinion in the Independent Auditor s Report 771 AU-C Section 705 Modifications to the Opinion in the Independent Auditor s Report Source: SAS No. 122; SAS No. 123. Effective for audits

### Quality control in dental practice Peter Kivovics DMD, BDS, MDSc, PhD, Chief Dental Officer for Hungary

Quality control in dental practice Peter Kivovics DMD, BDS, MDSc, PhD, Chief Dental Officer for Hungary National Center for Healthcare Audit and Improvement Quality Assurance vs. Quality Control Quality

### ) ) ) ) ) ) ) ) ) ) ) )

1666 K Street, NW Washington, D.C. 20006 Telephone: (202) 207-9100 Facsimile: (202)862-8430 PROPOSED AUDITING STANDARD RELATED TO CONFIRMATION AND RELATED AMENDMENTS TO PCAOB STANDARDS ) ) ) ) ) ) ) )

### Michigan Department of Treasury Tax Compliance Bureau Audit Division. Audit Sampling Manual

Audit Division Audit Sampling Manual Disclosure This manual is not intended as a statement of law, Department policy, or of the Treasurer s official position. The information contained in this manual has

### Numerical Summarization of Data OPRE 6301

Numerical Summarization of Data OPRE 6301 Motivation... In the previous session, we used graphical techniques to describe data. For example: While this histogram provides useful insight, other interesting

### DESCRIPTIVE STATISTICS. The purpose of statistics is to condense raw data to make it easier to answer specific questions; test hypotheses.

DESCRIPTIVE STATISTICS The purpose of statistics is to condense raw data to make it easier to answer specific questions; test hypotheses. DESCRIPTIVE VS. INFERENTIAL STATISTICS Descriptive To organize,

### Risk Assessment Standards

Risk Assessment Standards Virginia Government Finance Officer's Association Spring Conference May 23, 2008 P R C P KMPG LLP J M P C B H H H T M AICPA Presentation Objectives 1. Discuss background of risk

### SESSION 3 AUDIT PLANNING

SESSION 3 AUDIT PLANNING Learning Objectives: identify and explain the need for planning an audit identify and describe the contents of the overall audit strategy and the audit plan explain the difference

### 9-3.4 Likelihood ratio test. Neyman-Pearson lemma

9-3.4 Likelihood ratio test Neyman-Pearson lemma 9-1 Hypothesis Testing 9-1.1 Statistical Hypotheses Statistical hypothesis testing and confidence interval estimation of parameters are the fundamental

### New Audit Standards: How Will They Impact the Audit

New Audit Standards: How Will They Impact the Audit Process? Presented by Robinson, Farmer, Cox Associates The Commonwealth s premier source of financial expertise since 1953. Presentation Objectives Discuss

### Simple Linear Regression Inference

Simple Linear Regression Inference 1 Inference requirements The Normality assumption of the stochastic term e is needed for inference even if it is not a OLS requirement. Therefore we have: Interpretation

### Standard Deviation Calculator

CSS.com Chapter 35 Standard Deviation Calculator Introduction The is a tool to calculate the standard deviation from the data, the standard error, the range, percentiles, the COV, confidence limits, or