Sampling

Question 1

Steps to Sampling

Answer 1

• determine the relevant population from which to select sample
• The sample should be representative of the population so that, in a test of details, any identified misstatements in the sample can be extrapolated
• Determine if the population needs to be stratified - identify key differences and separate the population based on risk. Example: High value, unusual items, aged AR may be tested at 100% of population.

Question 2

Likely misstatement in representative items formula

Answer 2

Total misstatements discovered in sample items
/
Total book value of representative items tested
X
Book value of representative item population

Question 3

Statistical vs non-statistical sampling

Answer 3

Statistical
• random selection of the sample items
• the use of probability theory to evaluate sample results, including measurement of sampling risk

Sample selection: each unit has a probability of being selected
Sample Size: Determined using statistical techniques
Evaluation: Probability theory, enabling a sample risk estimate.

Non-statistical
• Judgemental sampling

Sample selection: Judgment is used, which each unit having a chance at being selected
Sample Size: Determined using professional judgement
Evaluation: Using profession judgement.

Question 4

Statistical vs non-statistical sampling

Advantage and disadvantages

Answer 4

Statistical
Advantages

Objective and defensible
Estimate can be made on entire population, not just tested items
Can better estimate the extent of testing needed

Disadvantages

Can be more time consuming and expensive
Staff may require additional training

Non-statistical
Advantages

Takes less time and had lower cost

Disadvantages

Cannot calculate sampling risk
More open to scrutiny because based on judgement

Question 5

Sample selection techniques

Answer 5

• random selection
• systematic selection
• haphazard selection
• monetary unit sampling

Question 6

Sampling steps

Answer 6

Population: Auditor shall consider the purpose of the procedure and the characteristics of the population

Sample size: The auditor shall determine a sample size sufficient to reduce sampling risk to an acceptably low level

Sample Approach: Statistical or non-statistical based on:
Risk: reduce risk to lowest possible level
Frequency: If control or details is performed more frequently then increase size
Other testing: if testing a number of controls or details related to the same objective then may be able to reduce sample size

Question 7

Extrapolating likely misstatement from the representative population

Answer 7

BV of representative population (RP) less any stratification = Adjusted BV of RP

Total $$ misstatements discovered in the sample / BV of RP = % of likely misstatements

Adjusted BV of RP x % of likely misstatements + any misstatements found in stratification = Likely misstatement in the entire population

Question 8

NPO Handbook name

Answer 8

CPA Canada Handbook–Accounting Standardsfor Not-for-Profit Organizations(ASNPO)