...Summary Audit sampling is necessary and helps improve an audit engagement because examining all items are rather very timely, requires more effort, and of course, at higher cost. Audit risks such as inherent, control and detection risk are first assessed when doing audit sampling. Low control risk means auditors rely extensively on the entity's internal control, and vice versa. The process for determining risks and gathering evidences to provide reasonable assurance are done through other audit procedures such as tests of controls and tests of details. These procedures are done by sampling. Using sampling, when auditors do not obtain sufficient and appropriate evidences, there is a risk of not identifying material errors and therefore result in a wrong conclusion. The use of either non-statistical sampling techniques or statistical ones does not directly affect application of audit procedures, appropriateness of audit evidences or courses of actions that could be taken. Even though the procedures in non-statistical sampling is less formal, they are still rigorous. Non-statistical sampling method involves eight steps namely establish objective test, defining the population, determining distortions, determining the appropriate sample size, determination of the right method for the sample selection, proper testing of the selected sample, extrapolating results, risk assessment. Firms include in their policies the techniques which they use to implement auditing procedures....
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...Variables Sampling 689 I have edited a portion of Module G from your textbook so that it more closely follows my lecture. I need to acknowledge that this is not my original work and much of it is taken word for word from the 2nd edition of Auditing & Assurance Services by Louwers, Ramsay, Sinason and Strawser. Tad Miller Classical Variables Sampling LEARNING OBJECTIVE Understand the basic process underlying classical variables sampling in an audit examination. When performing substantive procedures, one approach is classical variables sampling. Classical variables sampling methods use normal distribution theory and the Central Limit Theorem to provide a range estimate of the account balance. The auditor uses the sample estimates to determine whether the account balance is fairly stated. The Central Limit Theorem indicates larger sample sizes provide a sampling distribution that more closely reflects a normal distribution. Therefore, larger sample sizes will yield a lower level of sampling risk. In this section, we briefly illustrate mean-per-unit classical variables sampling. We illustrate the manual calculations necessary to determine sample size and evaluate sample results. However, if clients maintain records in electronic format, auditors typically use computer software to perform these tasks. Classical Variables Sampling: Planning In the planning stages of classical variables sampling, the auditor determines the objective of sampling, defines the attribute...
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...Solutions for Chapter 8 Tools to Gather Audit Evidence Review Questions: 8-1. The three main tools the auditor might use in gathering and evaluating audit evidence are: • Audit sampling • Generalized Audit Software • Analytical procedures 8-2. Non-sampling risk is the risk that the auditor makes an improper assessment of inherent and/or control risk or did not apply audit procedures carefully. It can be minimized through: (1) Good hiring, training and supervision practices; and (2) Careful and knowledgeable review of audit documentation and audit procedures. Sampling risk is the risk that the misstatement projections based on the sample results lead to the wrong conclusion about the population because of a non-representative sample. Sampling risk can be reduced by increasing the sample size – to the extreme of auditing the entire population therefore eliminating sampling risk altogether. 8-3. Factors to consider when choosing between statistical and nonstatistical sampling include: • Need to quantify and control sampling risks. • Additional cost of designing, selecting, and evaluating a statistical sample. • Availability of computer software to assist in designing, selecting, and/or evaluating the sample. • Ability of the audit staff to properly implement statistical sampling. 8-4. a. Tolerable deviation rate depends on the significance of the control procedure being tested...
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...selecting items for testing (True/False). (10%) False 2. Name the two types of audit sampling. (30%) Statistical and Non-Statistical 3. List the three types of statistical sampling. (30%) Simple random, stratified, and cluster sampling 4. Name three non-statistical sample selection methods. (30%) Block sampling, haphazard sampling, random number sampling 10/10 = 100% Week 4 Multiple Choice 1. In an audit sampling application, an auditor a) Performs procedures on all items in a balance and makes a conclusion about the entire balance. b) Performs procedures on less than 100 percent of the items in a balance and formulates a conclusion about the entire balance. c) Performs procedures on less than 100 percent of the items in a class of transactions to become familiar with the client's accounting system. d) Performs analytical procedures on the client's unaudited financial statements when planning the audit. 2. Auditors consider statistical sampling to be characterized by the following: a) Representative sample selection and nonmathematical consideration of the results. b) Carefully biased sample selection and mathematical calculation of the results. c) Representative sample selection and mathematical calculation of the results. d) Carefully biased sample selection and nonmathematical consideration of the results. 3. In which of the following scenarios would the use of sampling be most appropriate? a) The population consists of a relatively small number...
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...14-22 a. (4) b. (3) c. (1) d. (1) 14-23 a. (4) b. (4) c. (2) 15-11 Sampling error is an inherent part of sampling that results from testing less than the entire population. Sampling error simply means that the sample is not perfectly representative of the entire population. Nonsampling error occurs when audit tests do not uncover errors that exist in the sample. Nonsampling error can result from: 1. The auditor's failure to recognize exceptions, or 2. Inappropriate or ineffective audit procedures. There are two ways to reduce sampling risk: 1. Increase sample size. 2. Use an appropriate method of selecting sample items from the population. Careful design of audit procedures and proper supervision and review are ways to reduce nonsampling risk. 15-24 a. (4) b. (3) c. (2) 16-20 a. (4) b. (4) c. (2) 16-21 a. (4) b. (2) c. (2) 16-22 a. (2) b. (1) 16-24 a. BALANCE-RELATED AUDIT OBJECTIVE b. PREVENTIVE INTERNAL CONTROL c. TESTS OF DETAILS OF BALANCES AUDIT PROCEDURES 1. Existing accounts receivable are included in the aged trial balance (com- pleteness). The accounts receivable master file should be reconciled to the control account periodically by an independent person. Foot the aged trial balance and compare the total to the general ledger. Trace a sample of accounts from the master file to the aged trial balance to determine if all are included. 2. Accounts receivable exist (existence). The accounts receivable master file...
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...Module 3 1.In going through the plan it is my observation that the plan lacks in testing some areas, specifically the sales revenue and accounts receivable. Via info from the previous module we know there is no pre numbering for bills of lading and no other method to which these are accounted for. There are several things that could result from this weakness. We can conclude that there may be discrepancies in items shipped and items billed to customers. As well because of a lack of numerical reference, sampling can have a lack of effectiveness. () 2 & 3. (Refer to Attached Excel Document) 4. Upon analyzing the sampling results, it could be said that when it comes to cases of missing bills of lading there is significant evidence provided to conclude that because of the outlying beyond the allowable deviation, there has to be an unallowable amount of billings without shipment. I think these results would lead a skeptical auditor to conclude that there is possible inflation of earnings via conjured up sales recordings. () Module 4 1.The objective of performing this test is to determine if the factory equipment accounts are materially unstable or overstated from misclassification of certain items pertaining to regular maintenance. The unit being sampled here would be the all of the amounts debited to the factory equipment accounts (ie. the dollar amount). The population would be the total debits of $12,600,000, this is what is left after ($89860000-$772600000). By...
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...chosen set of transactions for the second control. In the first control, since it is moderately important the deviation rate is targeted at 8%. The population deviation rate is set at 1%, indicating that a sample size of 58 should be used, with an allowance for 1 deviation and still be assumed tolerable. In the second control, the tolerable deviation rate is still set a 8%, although now the population deviation rate is set at 2%, increasing the sample size up to a set of 77 transactions. In addition, there is now an allowance for 2 deviations within the set. [b] Do you agree with Darrell’s conclusions with respect to these first two controls? If not, why not? In evaluating Darrell’s conclusions, you may wish to refer to the attribute sampling evaluation table available in Appendix A. b. Darrell’s conclusions regarding the first two controls are not entirely accurate. Because he did not test using the right sample size, his conclusions cannot be relied upon. For the first control, Darrell concluded that the test is operating efficiently after finding only one exception. This assumption is correct as the right sample size of 58 was used, and within the population deviation of 1%, one exception is allowed for the control to still be effective. In the second control, although two exceptions are...
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...Chapter 9.2: Sampling Proportions Chapter 9.2 Homework Name_____________________ Done on Time:____/5 Completed:____/5 1. A USA Today poll asked a random sample of 1012 U.S. adults what they do with milk in the bowl after they have eaten the cereal. Of the respondents, 67% said that they drink it. Suppose that 70% of U.S. adults actually drink the cereal milk. (a) Find the mean and standard deviation of the proportion p of the sample who say they drink the cereal milk. The mean is μp=p=0.7 and the standard deviation is σp=p(1-p)n=0.7×0.31012=0.0144. (b) Explain why you can use the formula for standard deviation of p in this setting (Rule of Thumb 1) The population (all U.S. adults) is clearly at least 10 times as large as the sample (the 1012 surveyed adults). (c) Check that you can use the Normal approximation for the distribution of p (Rule of Thumb 2) The two conditions, np = 1012×0.7 = 708.4 > 10 and n(1 − p) = 1012×0.3 = 303.6 > 10, are both satisfied. (d) Find the probability of obtaining a sample of 1012 adults in which 67% or fewer say they drink the cereal milk. Do you have any doubts about the results of this poll? P(p≤0.67) = P(Z ≤ −2.08) = 0.0188. This is a fairly unusual result if 70% of the population actually drinks the cereal milk. (e) What sample size would be required to reduce the standard deviation of the sample proportion to one-half the value you found in (a)? To half the standard deviation of the sample proportion...
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...recognized and followed on a regular basis. While there are many auditing types to chose from for the medical office, for the function of verifying correctness, reliability and systematic records offices seem to prefer random sampling which is an exceptional technique that helps decrease the connected expenses and normally optimize employees time use in the process. Moreover, if the number sampled well represents the client population this will supply applicable and dependable conclusions without the need to test the entire population (Johnson, 2004). Choosing samples for the audit should be drawn at random to guarantee that each client has the same chance of being chosen. The use of an identification number coupled with the patient could be used in the selection in so doing removes any simply identifiable client information that might prejudice the process. Parameters for collection of samples must be recognized such as; gathering the data from each chart that has edited within the past 30 day that start with the number 3 or together with all charts in the office and using the same identification prerequisite (chart starting with 3). A number of health offices execute regular chart audits by collecting every 15th patients chart and carrying out the audit on them. Any way that the charts...
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...CHAPTER THREE 3.0 RESEARCH METHODOLOGY 3.1 INTRODUCTION Research is the process of arriving at dependable solution through the systematic investigation into a subject or problem, event or phenomenon. This project is an examination of the effects of taxes on pricing, profitability and goals of manufacturing companies. The objective of this chapter is basically to present a comprehensive description of the means by which necessary data are derived and the methods that were adopted for the presentation and also subsequent analysis of the project data. 3.2 METHODOLOGY The chapter entails the method used in the collection of data. The information derived from this research work was classified into primary and secondary data. This method of classification was found convenient for the presentation of this research work. The primary data constituted personal interview, which aim at providing fresh information valuable to this research. The secondary data constituted an intensive study of related literature, which actually made the research work conclusive. An extensive desk research was carried out on publication, newspaper, journals, internet, government gazettes and published materials on taxation. Libraries were also visited in the course of information gathering, libraries visited includes Lagos state Polytechnic Library and Library of The Institute of Chartered Accountant (ICAN) Lagos. 3.3 RESEARCH QUESTIONS i. Does company tax affect the profitability of manufacturing...
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...quantitative data is the precise measurement of a specific behavior or phenomena (Cooper, Schindler 2014). Quantitative data is generally gathered by experiments, standardized testing, surveys, or non-participant observation (Cooper, Schindler 2014). While gathering both types of data, it is important to focus on the type of sampling method you utilize. For example, simple random sampling, or probability sampling, can be used to test a targeted representation of a test population (Cooper, Schindler 2014). There are other sampling methods as well. Stratified random sampling, for instance, is probability sampling that draws from each strata of population. One study I found to demonstrate descriptive statistics used stratified random statistics. In this study, they used stratified random sampling to test accuracy in medical billing (Buddahulsomsiri, Parthanadee 2008). They use two different ways to test accuracy; one is through percent accuracy, and the other is total dollar amount accuracy. The other study I chose was a quantitative study on using telephone sampling to recruit study subjects. A random sampling was performed in order to get a sampling for a family violence study (Slep, Heyman, Williams 2006). The...
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...Auditing 402 March 5, 2013 Week 9- Week 11 Homework Assignments 15-26 A. Effective audit procedure for testing whether shipments have been billed is a sample of warehouse removal slip should be selected. It should be examined to see whether it has the proper sales invoice attach or not. So the sampling unit for the audit procedure will be warehouse removal slip. B. Using attribute sampling method if the auditor is willing to accept the TER of 4% and at ARACR of 5% without exception in the sample size would be 75 as determined from table 8.9 C. Design of random selection plan from population: Population size of ware house removal slips = 34,687-11,741 =22,946 Sample size determined in b = 75 Interval = Population sized Sample sized determined = 22,946 75 =305 Sample will be 11878, 12183, 12488, 12793, and 13908 23-24 1. Evaluate the details of the cash recipts journal entries with the details of the daily deposit slips. Lapping indicated a cover up of cash deficiency. 2. Arrange a bank transfer schedule. This way the auditor is able to verify the transactions. 3. Compare the details of the cash receipts journal entries with the details of the corresponding daily deposit slips. 4. Count the balance in petty cash at the year end and also examine invoices, receipts, and other supporting documents related with reimbursement of petty cash. 5. Prepare a bank transfer schedule. 6. Agree gross amount on payroll checks to...
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...Simply, there are five major and important steps involved in the research process: 1.Defining the Problem. 2.Research Design. 3.Data Collection. 4.Analysis. 5.Report Writing & presentation. A brief discussion on these steps is: 1.Problem audit and problem definition - What is the problem? What are the various aspects of the problem? What information is needed? 2.Conceptualization and operationalization - How exactly do we define the concepts involved? How do we translate these concepts into observable and measurable behaviours? 3.Hypothesis specification - What claim(s) do we want to test? 4.Research design specification - What type of methodology to use? - examples: questionnaire, survey 5.Question specification - What questions to ask? In what order? 6.Scale specification - How will preferences be rated? 7.Sampling design specification - What is the total population? What sample size is necessary for this population? What sampling method to use?- examples: Probability Sampling:- (cluster sampling, stratified sampling, simple random sampling, multistage sampling, systematic sampling) & Nonprobability sampling:- (Convenience Sampling,Judgement Sampling, Purposive Sampling, Quota Sampling, Snowball Sampling, etc. ) 8.Data collection - Use mail, telephone, internet, mall intercepts 9.Codification and re-specification - Make adjustments to the raw data so it is compatible with statistical techniques and with the objectives of the research - examples: assigning...
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...AUDITING PROCUREMENT CARDS (P-CARDS) BRAD TOMLINSON, ASSISTANT ADMINISTRATOR COMPUTER ASSISTED AUDIT GROUP OHIO DEPARTMENT OF TAXATION, AUDIT DIVISION Telephone 614-387-2068 Email: bradley_tomlinson@tax.state.oh.us WHAT ARE P-CARDS? An enhanced credit card used by business employees. It is similar to a MasterCard or Visa card, but contains more information that can be used to control purchases such as dollar limits and number of transactions within a given period or for an individual or group. (From PCMag.com) 1 WHY USE P-CARDS? • Reduce processing costs for invoices, purchase orders, check processing etc. • Increase efficiency and control • Assign cards to individuals or departments with variable controls • Set dollar limits per transaction or month • Limit to specific suppliers WHY USE P-CARDS? • Change purchasing authorization and spending criteria quickly and easily • Buy more efficiently online, saving money and streamlining processes • Better track spending with comprehensive, customized reports 2 FACTORS TO CONSIDER • Does the taxpayer have a written policy for P-card purchases? Spending cap? Restricted to departments? Restricted to accounts (travel & expense)? Restricted to certain personnel? Restricted to certain suppliers? FACTORS TO CONSIDER Does the taxpayer adhere to the policy? 3 FACTORS TO CONSIDER • Is the taxpayer a direct pay permit holder? Does the taxpayer exercise their direct...
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...1 Theoretical reveiw 8 2.1.1 Key Steps Towards Effective Succession Planning 9 2.1.2 Measures For Effective Succession Planning 13 2.1.2.1 Part A Measures: Group 1 -- Basic Plan Usage Factors. 13 2.1.2.2 Part A Measures: Group 2 -- Assessing Whether Your Plan Contains Key Design Features 14 2.1.2.3 Part B Measures: Group 3 -- Operational Indications Of Plan Success. 15 2.1.2.4 Part B Measures: Group 4 -- Measures Of Direct Business Impacts 16 2.1.2.5 Part B Measures: Group 5 -- Indications Of Plan Failure 17 2.2 Empirical Studies Of Succession Planning 18 3.0 Research Methodology 20 3.1 Introduction: 20 3.2 Research Design: 20 3.3 Area Of The Study: 20 3.4 Unit Of Enquiry: 20 3.5 Sample Size And Sampling Procedure: 21 3.5.1 Sample Size. 21 3.5.2 Sampling Technique 21 3.6 Data Collection Methods: 22 3.6.1 Questionnaires: 22 3.6.2 Interview: 22 3.6.3 Participant Observation: 22 3.6.4 Documentation: 22 3.7 Work Plan and Research Budget...............................................................................22 3.7.1 Research Activities & Work Plan.....................................................................22 3.7.2 Budget………………………………………………………………………..23 REFERENCES………………………………………………………………………….24 APPENDICES…………………………………………………………………………..26 Appendix I - Questionnaire for Employees……………………………………...26 Appendix II- Questionnaire for Heads of Department…………………………...
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