1 / 11

An Introduction to Attributes Sampling in Audits

An Introduction to Attributes Sampling in Audits. Dr. Donald K. McConnell Jr. Attributes Sampling Plans. Used typically to test controls in a controls reliance audit scenario Results are always in terms of a percentage projection Do not test dollar amounts

leigh-chase
Download Presentation

An Introduction to Attributes Sampling in Audits

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. An Introduction to Attributes Sampling in Audits Dr. Donald K. McConnell Jr.

  2. Attributes Sampling Plans • Used typically to test controls in a controls reliance audit scenario • Results are always in terms of a percentage projection • Do not test dollar amounts • More non-stat than stat sampling has been done in practice recently • SOX appears to be changing that!

  3. Assume the following: • Auditor wants to test controls over cash disbursements/acquisitions for 9 month period 1/2/xx-9/30/xx • What is an attribute? • Auditor must define attributes of interest • N=100,000 checks issued in relevant 9 month period • If auditor “intuitively” wants 90% confidence level, what do you think sample size (n) would be?

  4. The Auditor must specify parameters • Risk of assessing control risk too low [risk of over-reliance on internal controls (ARO or ARACR)] • Tolerable error rate (TER) • Expected population error rate (EPER) • Also first check number issued 1/2/xx and last check number issued 9/30/xx

  5. Common Parameters in Practice • 90-5-0 would be moderate controls reliance: • ARO=10% [Complement of confidence level is risk] • TER= 5% • EPER=0% for client with good controls

  6. Concerning These Parameters: • How does the auditor determine EPER? • Examples: • What was last year’s actual result? • First time audit: pilot sample of 50 (per AICPA industry audit guide) • Does 5% TER bother you? • Why such a high TER? • Huge sample sizes if a more precise estimate is wanted, e.g. 2% TER! • Year end substantive testing provides further “utils” of evidence

  7. What Attributes Would We Want to Test? Examples: • Does check number and amount agree with entry in CDJ? • Is check supported by a vendor’s invoice in that amount? • Is there an authorized P.O. signed by purchasing agent? • Is there a receiving report from the dock? • Was check coutersigned if in excess of $xx,xxx? • Was final approval for payment authorized? • Etc.

  8. Let’s do the Test • Laptop computer and audit software would be used • What if you are in West Texas and your hard drive crashed! • Resort to tables • Recall test parameters were 90-5-0 • T 15-8: Sample size calculation • n=45 checks randomly selected

  9. Evaluating Sample Results • Assume no compliance deviations for 9 of 10 tested attributes (T15-9) • 5.0% is “upper bound” • What does this mean? • We are 90% certain true rate of controls deviations doesn’t exceed 5.0% • Is this acceptable? • Yes, TER was 5%

  10. Evaluating Sample Results (Con.) • Assume for one disbursement, no supporting P.O. could be found • Can we select another check number randomly as substitute? • NO!!!! It’s a compliance deviation • What is projected error rate upper bound? • 8.4% • Is this acceptable?

  11. What Options do we Have? • Expand sample size? What would it be? • In real world, probably wouldn’t unless clearly due to sampling error • Unless sampling error, very likely to find at least one more check with no supporting P.O. • What if one more missing P.O. found in expanded sample? • What is projected upper error rate? (assuming sample expanded by 35 checks) • still unacceptable • Many auditors would “drop back ten and punt,” alternatively expanding substantive testing in the area

More Related