Expected Error Rate Audit
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Expected Error Rate Definition
to Set Sample Size In an Audit Important Auditing Vocabulary and Key Terms Auditing For Dummies Sarbanes-Oxley For tolerable error definition Dummies Cheat Sheet Auditing For Dummies Cheat Sheet Load more BusinessAccountingAuditingDifferent Ways to Set Sample Size In an Audit Different Ways to Set Sample Size In an Audit Related Book tolerable error in audit sampling Auditing For Dummies By Maire Loughran You can use several methods to determine the size of an audit sample. You can set the audit sample size based on tolerable and expected error or the previous year's policy. You can use tables and software to set the sample size, or you can adjust the size based on your analysis. Using tolerable
Tolerable Error Rate
and expected error Tolerable error refers to the maximum number of client errors in a sample size that you're prepared to accept and still conclude that you've achieved the audit objectives. Expected error is the amount of error in your sample size that you plan for and expect. The following sections explain what tools you can use and adjustments you can make to reach an unqualified report. Following last year's audit Audit firms use the same types of criteria to set an audit's confidence level (firm policy, population size, results of analytical review, and other known facts about the client and its business environment) as they do to set tolerable and expected error figures. If the audit client is new, your firm's policy will dictate the tolerable and expected error figures. If you're working with a repeat client, last year's tolerable and expected error figures will be your baseline. However, you may determine that those figures should be changed. Keep reading, if so. Using tables or software to set sample size You can use many different me
- 25 Evaluation of sample results 26 - 32 Analysis of errors in the tolerable error and expected error sample 27 - 30 Inferences to be drawn for the population tolerable error rate definition as a whole 31 - 32 Compliance with International Standards on Auditing 33 Effective date 34 Appendix
Tolerable Deviation Rate
- Table 1 : Examples of factors influencing sample sizes for tests of control Table 2 : Examples of factors influencing sample sizes for substantive procedures [7.97 http://www.dummies.com/business/accounting/auditing/different-ways-to-set-sample-size-in-an-audit/ (Supp. 4/97)] STATEMENT OF AUDITING STANDARDS 430 AUDIT SAMPLING (Issued July 1997) [7.97 (Supp. 4/97)] Statements of Auditing Standards (SASs) are to be read in the light of SAS 010 "The scope and authority of auditing pronouncements". In particular, they contain basic principles and essential procedures (auditing standards), indicated by paragraphs in bold italic type, http://app1.hkicpa.org.hk/professionaltechnical/pronouncements/handbook/volume3a/sas430.htm with which auditors are expected to comply in the conduct of any audit including those of companies applying section 141D of the Companies Ordinance. SASs also include explanatory and other material which is designed to assist auditors in interpreting and applying auditing standards. Introduction 1. The purpose of this Statement of Auditing Standards (SAS) is to establish standards and provide guidance on the design and selection of an audit sample and the evaluation of the sample results. This SAS applies equally to both statistical and non-statistical sampling methods. Either method, when properly applied, can provide appropriate audit evidence. 2. When using either statistical or non-statistical sampling methods, auditors should design and select an audit sample, perform audit procedures thereon and evaluate sample results so as to provide sufficient appropriate audit evidence. (SAS 430.1) 3. "Audit sampling" means the application of audit procedures to less than 100% of the items within an account balance or class of transactions to enable auditors to obt
procedure on less than one hundred percent of the population. It represents the risk that the audit sample is not representative of the population. In other words, that the auditor's evaluation of a population based on an http://www4.ncsu.edu/unity/users/b/buckless/www/AUSection350.html audit sample is different from what it would be if the entire population was tested. Nonsampling risk results from human error. It represents the risk that the selected audit procedure is not appropriate for the intended purpose or the evidence from an audit procedure is misinterpreted. Nonsampling risk exists regardless of the number of items selected from a population for testing. Sampling risk should be considered when an auditor performs an audit error rate procedure on less than one hundred percent of a clearly definable population for the purpose of evaluating the population. There are two aspects to sampling risk when performing tests of controls: The risk of assessing control risk too low represents the risk that an audit sample supports the conclusion that the design and operation of an internal control is effective when in fact it is not. The risk of assessing control risk too expected error rate high represents the risk that an audit sample supports the conclusion that the design and operation of an internal control is not effective when in fact it is effective. Similarly there are two aspects to sampling risk when performing substantive tests: The risk of incorrect acceptance represents the risk that an audit sample supports the conclusion that a material misstatement does not exist when in fact a material misstatement does exist. This risk is similar to the risk of assessing control risk too low. The risk of incorrect rejection represents the risk that an audit sample supports the conclusion that a material misstatement exists when in fact a material misstatement does not exist. This risk is similar to the risk of assessing control risk too high. The risk of assessing control risk too low and the risk of incorrect acceptance are concerned with the effectiveness of audit tests while the risk of assessing control risk too high and the risk of incorrect acceptance are concerned with the efficiency of audit tests. Sampling risk can be considered using a non-statistical or statistical approach. Both approaches require professional judgement. The main difference between the two approaches is that statistical approaches allow auditors to quantify sampling risk. Sample Selection Methods Five methods are commonly used to select p