CHAPTER 11:
SELECTING ITEMS FOR
TESTING AND AUDIT
SAMPLING
Presented by:
Erandio, Honey Grace C.
Fontanares, June Kennedy
Santolices, Myles
Objectives:
At the end of this chapter, readers should be able to discuss:
1. The means available to the auditor for selecting items for testing
2. The objective of the auditor when using audit sampling
3. The risks involved when using audit sampling
4. The means to manage the risks arising from audit sampling
5. The general approaches to audit sampling
6. The types of audit sampling plans
7. The factors affecting the determination of sample size
8. The methods or techniques of selecting audit samples
9. The evaluation of results of audit sampling
10. The documentation requirements for audit sampling procedures
Introduction
During the audit, the auditor must gather sufficient and appropriate evidence
to support the opinion on the financial statements. However, it is often
impractical to examine every transaction, so auditors use different methods
to select items for testing. The choice depends on factors such as risk of
material misstatement, efficiency, and the purpose of the audit procedure
SELECTING ITEMS FOR TESTING
The auditor must select items for testing that will provide enough evidence to
achieve the purpose of the audit procedure. According to PSA, the methods for
selecting items include:
A. SELECTING ALL ITEMS (100% EXAMINATION)
The auditor may decide that it will be most appropriate to examine the entire population
of items that make up a class of transactions or an account balance (or a stratum within
that population).
100% examination is commonly used when performing tests of details, but it is unlikely
to be used in tests of controls because of impracticability.
This approach may be appropriate when:
The population constitutes a small number of large value items.
There is a significant risk, and other means do not provide sufficient appropriate
audit evidence.
The repetitive nature of a calculation or another process performed automatically by
an information system makes a 100% examination cost-effective.
B. SELECTING SPECIFIC ITEMS (ITEMS FOR SPECIFIC
TESTING)
The auditor may decide to select specific items from a population for testing. In making this
decision, factors such as the auditor’s understanding of the entity, the assessed risks of
material misstatement, and the characteristics of the population are considered.
Specific items selected may include:
High-value or key items that are significant or risk-prone.
All items over a certain amount, to verify a large portion of the total balance.
Items to obtain information, such as understanding the nature of transactions.
Items to test procedures being performed by the entity.
Although selective examination of specific items can be an efficient means of obtaining
audit evidence, it does not constitute audit sampling. The results apply only to the items
tested and cannot be projected to the entire population.
C. AUDIT SAMPLING
Audit sampling involves the application of audit procedures to less than 100% of items within a population of
audit relevance such that all sampling units have a chance of selection.
Population means the entire set of data from which a sample is selected and about which the auditor wishes to
draw conclusions.
Sampling unit refers to individual item constituting a population. Sampling units might be physical items (for
example, checks listed on deposit slips, credit entries on bank statements, sales invoices or debtors' balances) or
monetary units.
AUDIT SAMPLING vs. SELECTING SPECIFIC ITEMS
The main difference between audit sampling and selecting specific items lies in how the items are chosen and
how conclusions are drawn. In selecting specific items, the auditor sets criteria that only some items in the
population meet, while in audit sampling, all units have a chance of selection. Therefore, conclusions from
specific item testing apply only to those tested items, whereas conclusions from audit sampling can be projected
to the entire population.
OBJECTIVE OF THE AUDITOR
The objective of the auditor when using audit sampling is to design and select the audit sample,
perform audit procedures on the sample items, and evaluate the results from the sample in a manner
that will provide an appropriate basis for drawing conclusions about the population from which the
sample is drawn.
Audit sampling is applicable in both tests of controls and substantive tests, provided certain
conditions are met:
For tests of controls, the control being tested must leave documentary evidence of its
application.
For substantive tests, the auditor applies tests of details—either of transactions or of balances.
Sampling is not applicable to
Inquiry and observation
Analytical procedures
Procedures applied to every item in a population
Test of controls where application is not documented
Procedures from which the auditor does not intend to extend the remaining items in the account
Untested balances
Conclusion reached
When audit sampling is used, the auditor aims to reach conclusions about the entire
population based on the portion tested. The conclusions differ depending on the type of
test performed:
For tests of controls: the auditor decides whether the controls are effective or
ineffective.
For substantive tests: the auditor determines whether the account balance is fairly
stated or if additional procedures are needed.
Risks involved when
obtaining evidence
A. Sampling risk B. Non-Sampling risk
Sampling risk
refers to the risk that the auditor's conclusion based
on a sample may be different from the conclusion if
the entire population were subject to the same audit
procedures.
Representative
Samples
are set sampling units which
possess the characteristics of the
population.
Types of Sampling
Risks
Methods for managing
Sampling Risk
Sample selection method
Random number selection -
applied through random
number generators such as
random number table or
computerized random
number generator
Sample selection method
Systematic selection - the
population is divided by
sample size to give a
sampling interval from a
haphazardly determined
starting point.
Sample selection method
Haphazard selection -
sample selection without
following a structure
technique
Sample selection method
Block selection - selection
of block(s) of contiguous
items from within the
population.
Sample selection method
Systematic selection - the
population is divided by
sample size to give a
sampling interval from a
haphazardly determined
starting point.
Non-Sampling Risk
Defined as the possibility that
the auditor does not recognize
misstatements or deviations
included in the sample for what
they are.
Examples:
Inappropriate selection of audit
procedures
Misinterpretation of evidence
Failure to recognize
misstatement/deviation
APPROACHES,
PLANS, AND
METHODS FOR
AUDIT SAMPLING
AUDIT SAMPLING APPROACHES
1. Statistical Sampling
Characteristics:
a. Random selection of the sample items
b. The use of probability theory to evaluate sample results, including
measurement of sampling risk.
Using the laws of probability, it allows the auditor to measure or quantify the ff:
• Sample size
• Sampling risk
• Sample’s reliability (reliability or confidence level)
2. Non-statistical Sampling
→auditor
In identifying sample size, selecting the sample, and evaluating results, the
relies heavily on his/her professional judgement.
AUDIT SAMPLING PLANS
A. ATTRIBUTE SAMPLING PLAN
→ Used to estimate the rate or frequency of occurrence of a certain
characteristic in a population.
→ This is performed during test of controls to estimate the rate of deviations
from prescribed internal control policies or procedures, which should leave a trail
of documentary evidence.
PROCEDURES IN AN ATTRIBUTE SAMPLING PLAN
A1. Determine the objective of the test and the specific procedures to be
performed.
→ The auditor should clearly state what is to be accomplished or the specific
objectives to be attained. In addition, the auditor shall perform audit procedures
appropriate to the particular audit objective on each item selected.
Example: The auditor wishes to determine whether procedures related to billing of
shipments are effective.
Objective: To determine whether all shipments during the period were billed.
Procedures: Match shipping documents with their corresponding sales invoice.
Direction of testing: Shipping document to sales invoice.
PROCEDURES IN AN ATTRIBUTE SAMPLING PLAN
A2. Determine the attribute and deviation conditions
→ An auditor should identify characteristics or attributes that would denote that
the operation of the internal control is effective. A deviation is the absence of an
attribute.
Example: Using the same data in A1, the appropriate attribute the auditor will be
looking for would be:
Attribute: Each shipping document should have a corresponding sales invoice.
Absence of sales invoice will generally constitute as deviation.
PROCEDURES IN AN ATTRIBUTE SAMPLING PLAN
A3. Define the population
→ Population is the class of transactions being tested. This would involve defining
the period covered by the test, defining the sampling unit, and consideration of the
completeness of the population.
Example: Using the same data in A1, the population and sampling unit are:
Population: All shipping documents processed during the period.
Sampling Unit: Each shipping document processed during the period.
PROCEDURES IN AN ATTRIBUTE SAMPLING PLAN
A4. Determine the sample size
To quantify the sample size, the auditor may use:
• Statistical sampling, the auditor determines the sample by mathematically
computing it using statistically based formula; or
• Non-statistical sampling, the auditor relies primarily on his/her judgement.
PROCEDURES IN AN ATTRIBUTE SAMPLING PLAN
A4. Determine the sample size
Furthermore, sample size is determined by considering the following qualitative
factors:
a. Risk of Material Misstatement (specifically, the control risk)
→ When the auditor relies more on the effectiveness of internal controls to
reduce the risk of material misstatement, more tests of controls are needed —
which means a larger sample size is required.
Relationship: Decrease in CR, Decrease in RoMM, Increase in SAMPLE SIZE
Note: The relationship is not necessarily an inverse relationship. If CR is assessed
at a high level, no reliance will be placed on the control. Thus, no test of controls
will be performed, and the auditor will rely heavily on substantive tests.
PROCEDURES IN AN ATTRIBUTE SAMPLING PLAN
A4. Determine the sample size
Furthermore, sample size is determined by considering the following qualitative
factors:
b. Acceptable level of sampling risk, particularly the risk of assessing control
risk too low
→ When the auditor wants a higher level of confidence or greater assurance that
the sample results truly represent the population, the sample size must be
increased to reduce the risk of error.
Relationship: Increase in CONFIDENCE LEVEL, Decrease in SAMPLING RISK,
Increase in SAMPLE SIZE
Note:
• Confidence level and sampling risk: INVESRSE
• Sampling risk and sample size: INVERSE
• Confidence level and sample size: DIRECT
PROCEDURES IN AN ATTRIBUTE SAMPLING PLAN
A4. Determine the sample size
Furthermore, sample size is determined by considering the following qualitative
factors:
c. Tolerable deviation rate (TDR)
→ TDR is the maximum rate of deviation or error in the internal control that the
auditor is willing to accept while still considering the control effective. It is based
on the auditor’s professional judgment.
→ When the auditor sets a lower TDR, more items need to be tested, which
means a larger sample size is required.
Relationship: INVERSE – Decrease in TDR, Increase in SAMPLE SIZE
PROCEDURES IN AN ATTRIBUTE SAMPLING PLAN
A4. Determine the sample size
Furthermore, sample size is determined by considering the following qualitative
factors:
d. Expected population deviation rate (EDR)
→ EDR refers to the rate of deviation or error that the auditor expects to find in the
population before performing any tests. The EDR should not exceed the TDR;
otherwise, it would indicate that the control is likely ineffective.
→ In determining the EDR, the auditor considers several factors such as:
• Understanding of the business and internal control system,
• Changes in personnel or control procedures
• The results of previous audits
• The results of other related audit procedures
→ The higher the EDR, the larger the sample size needs to be so that the auditor is
in a position to make a reasonable estimate of the actual rate of deviation.
Relationship: DIRECT – Increase in EDR, Increase in SAMPLE SIZE
PROCEDURES IN AN ATTRIBUTE SAMPLING PLAN
A4. Determine the sample size
Furthermore, sample size is determined by considering the following qualitative
factors:
e. Sampling units in the population
→ For large populations, the actual size of the population has little, if any, effect
on sample size (NEGLIGIBLE EFFECT).
→ For small populations, audit sampling may not be as efficient as alternative
means of obtaining sufficient appropriate audit evidence.
PROCEDURES IN AN ATTRIBUTE SAMPLING PLAN
A5. Determine the method of selecting the sample and select the sample
→ When selecting the sample, all items in the population should have an
opportunity to be selected. The items to be selected should be representative of
the population.
Statistical Non-statistical
Random-number selection ✓ ✓
Systematic selection ✓ ✓
Haphazard selection x ✓
PROCEDURES IN AN ATTRIBUTE SAMPLING PLAN
A6. Test the sample item
→ The auditor shall apply the appropriate audit procedures to all items in the
sample to determine if there any deviations from the prescribed controls
procedures. Deviations may be an isolated or recurring type of occurrence.
The following are the conditions that may be observed by the auditor during
testing:
a. Sample possesses the attribute
→ This is an indication that the control may be relied upon.
PROCEDURES IN AN ATTRIBUTE SAMPLING PLAN
A6. Test the sample item
The following are the conditions that may be observed by the auditor during
testing:
b. Sample lacks the attribute
→ This is generally treated as a deviation. However, the auditor should consider
that, while deviations from control procedures increase the risk of material
misstatements, such deviations do not necessarily result in errors. Also, the auditor
shall:
• Investigate the nature and cause of any deviations identified
• Evaluate their possible effect on the purpose of the audit procedure and on other
areas of the audit
• Consider the qualitative aspect of the deviation (e.g., the deviation was initially
concealed by fraud)
PROCEDURES IN AN ATTRIBUTE SAMPLING PLAN
A6. Test the sample item
The following are the conditions that may be observed by the auditor during
testing:
c. Voided, unused, or inapplicable documents selected as sample
→ In case of properly voided, unused, or inapplicable documents selected as
samples can be replaced. Otherwise, such sample will be treated as deviation.
d. Sample selected is missing
→ In case of missing document, the auditor shall determine if there are alternative
procedures available to test whether that purchase order was properly approved.
In the absence of alternative procedures, the missing document should be
considered as a deviation.
PROCEDURES IN AN ATTRIBUTE SAMPLING PLAN
A6. Test the sample item
The following are the conditions that may be observed by the auditor during
testing:
e. Sample selected represents an anomalous error
→ Anomalous error is an error that arises from an isolated event that has not
recurred other than on specifically identifiable occasions and is therefore not
representative of errors in the population. Since it is not a representative of errors
in the population, the sample is ordinarily replaced.
PROCEDURES IN AN ATTRIBUTE SAMPLING PLAN
A7. Evaluate the sample results
→ Once audit procedures have been performed on all samples, the auditor shall
evaluate:
• The results of the sample
• Whether the use of audit sampling has provided a reasonable basis for conclusion
about the population that has been tested.
PROCEDURES IN AN ATTRIBUTE SAMPLING PLAN
A7. Evaluate the sample results
1. Statistical
a. Calculate the sample deviation rate (SDR)
→ This rate represents the auditor’s best estimate of the deviation rate in the
entire population. When testing the controls, an unexpectedly high sample
deviation rate may lead to an increase in the assessed risk of material
misstatement, unless further audit evidence substantiating the initial assessment
is obtained.
SDR = Number of deviations observed / Sample size
Note:
• If SDR > TDR, auditor assesses control risk at maximum level
• If SDR < TDR, auditor proceed to step B.
PROCEDURES IN AN ATTRIBUTE SAMPLING PLAN
A7. Evaluate the sample results
1. Statistical
b. Determine the estimated maximum rate of deviation (EMRoD) and the
allowance for sampling risk (achieved precision).
→ EMRoD represents the upper limit of the range of possible rates of deviation
consistent with the auditor’s planned reliance on internal controls. EMRoD is also
called upper deviation rate, upper limit, and upper precision limit.
EMRoD = SDR + Allowance for Sampling Risk*
* Allowance for sampling risk may be determined by getting the difference between
TDR and EDR.
PROCEDURES IN AN ATTRIBUTE SAMPLING PLAN
A7. Evaluate the sample results
1. Statistical
c. Compare the EMRoD to TDR specified in designing the sample.
→ If EMRoD is higher than the TDR, control risk will be assessed at a high level.
Otherwise, the auditor will conclude that the controls are effective and may be
relied upon.
Note:
• If EMRoD > TDR, auditor assesses control risk at maximum level
• If EMRoD ≤ TDR, auditor concludes that controls are effective and ultimately
assess control risk below maximum level
PROCEDURES IN AN ATTRIBUTE SAMPLING PLAN
A7. Evaluate the sample results
1. Statistical
d. Consider the qualitative aspects of the deviation
e. Reach an overall conclusion
→ The main objective of this procedure is for the auditor to conclude whether
controls are effective or ineffective.
PROCEDURES IN AN ATTRIBUTE SAMPLING PLAN
A7. Evaluate the sample results
1. Statistical
Note:
• Tolerable Deviation Rate (TDR) - Is the maximum rate of error the auditor is
willing to accept before concluding that the control is not effective.
• Expected Deviation Rate - Is the auditor’s estimate of how many deviations or
errors are expected in the sample before testing begins.
• Sample Deviation Rate (SDR) - Is the actual error rate found after testing the
sample.
PROCEDURES IN AN ATTRIBUTE SAMPLING PLAN
A7. Evaluate the sample results
2. Non-statistical
→ TDR is compared with SDR to arrive at the conclusion. TDR must be significantly
higher than SDR for the auditor to conclude that controls are effective.
→ However, as SDR nears the set TDR, the greater possibility that the auditor might
conclude that controls are ineffective.
→ Moreover, items D and E in statistical shall also be performed in non-statistical
approach.
PROCEDURES IN AN ATTRIBUTE SAMPLING PLAN
A8. Document the sampling procedure
The following items should be documented in the engagement’s working papers.
• Each of the above procedures performed
• The evidence obtained that will serve as basis for overall conclusions
• The overall conclusion
OTHER SAMPLING METHODS FOR AN ATTRIBUTE SAMPLING PLAN
1. Sequential sampling (stop-or-go)
→ The auditor examines small number of samples in batches. Each time the
auditor finished examining a batch of initial samples, the auditor evaluates
whether or not a conclusion can be reached.
→ If the auditor believes the evidence obtained is not sufficient and appropriate,
the auditor examines additional samples to obtain more information.
→ On the other hand, if the auditor believes the evidence obtained is sufficient and
appropriate, the auditor stops evaluating the samples and a conclusion is made.
→ This method is used when the auditor expects zero or very few deviations within
the population.
OTHER SAMPLING METHODS FOR AN ATTRIBUTE SAMPLING PLAN
2. Discovery planning
→ The objective of this method is to decide whether to accept or reject an audit
population for which acceptance is appropriate only if the occurrence rate of
serious errors is very low or when the auditor expects near zero deviations.
B. VARIABLE SAMPLING PLAN
it is a sampling plan used to estimate numerical measurements of a population,
such as peso value. It is performed during substantive testing, particularly when the
auditor applies tests of details—whether for transactions or balances.
It is not applicable when performing substantive testing through analytical
procedures. The purpose of this plan is to estimate the amount of misstatement in
the financial statements of the entity under audit.
Procedures in a variable sampling plan
B1. Determine the objective of the test and the specific procedures to be performed.
The auditor should clearly state what is to be accomplished or the specific objectives to be attained.
When performing audit sampling, the auditor’s objective is to test the reasonableness of a recorded
account balance in the financial statements.
In addition, the auditor shall perform audit procedures appropriate to the particular audit objective on
each item selected.
Example: The auditor wants to establish the existence of the Accounts Receivable balance as of the
reporting date.
Objective: To determine whether the accounts receivable balance as of the reporting date exists.
Procedures:
Send confirmation requests to the selected customer samples.
Examine source documents such as sales invoices, shipping documents, and sales orders.
Procedures in a variable sampling plan
B2. Define the population
The population is the class of transactions being tested. This step involves defining the period
covered by the test, identifying the sampling unit, and ensuring the completeness of the
population.
Example: Using the same objective in the previous step, the population and sampling unit are
defined as follows:
Population: The entire Accounts Receivable balance.
Sampling Unit: May be each customer included in the balance, or each peso balance
comprising the Accounts Receivable balance (value-weighted selection method).
Procedures in a variable sampling plan
B3. Define what constitutes "fair presentation"
The auditor defines “fair presentation” by using the materiality set during the planning
phase for the account balance being examined.
In variable sampling, this materiality level is referred to as the tolerable misstatement,
which is an application of performance materiality as defined in PSA 320.
Tolerable misstatement is the monetary amount set by the auditor, representing the limit
beyond which misstatements in the population are considered material. The auditor seeks
to obtain reasonable assurance that the actual misstatement does not exceed this
amount.
Procedures in a variable sampling plan
B4. Determine the sample size
After determining the population to be tested, the auditor must determine the sample size.
To quantify the sample size, the auditor may use either a statistical or non-statistical
approach. Sample size is influenced by several qualitative factors:
a. Risk of Material Misstatement (IR + CR)
Composed of inherent risk and control risk.
The higher the assessed risk, the larger the sample size needed.
Example: If the auditor does not rely on controls, they must perform more substantive
testing.
→
Relationship: Direct – Increase in IR or CR Increase in sample size.
b. Use of Other Substantive Procedures
When the auditor performs more other substantive procedures (tests of details or
analytical procedures) for the same assertion, the sample size for this test can be
reduced.
→
Relationship: Inverse – More other procedures Smaller sample.
Procedures in a variable sampling plan
c. Acceptable Level of Sampling Risk (Risk of Incorrect Acceptance)
If the auditor wants a higher level of assurance that tolerable misstatement is not
exceeded, the sample must be larger.
The greater the desired confidence, the lower the sampling risk, and thus the
larger the sample.
Important Notes:
Confidence level and sampling risk are inversely related.
Sampling risk and sample size are inversely related.
Confidence level and sample size are directly related.
d. Tolerable Misstatement (TM)
When the auditor sets a lower TM, they are being stricter—willing to accept less
error.
This means more items must be tested, resulting in a larger sample.
→
Relationship: Inverse – Decrease in TM Increase in sample size.
Procedures in a variable sampling plan
e. Expected Population Misstatement (EM)
Refers to the amount of misstatement the auditor expects to find in the population.
Influenced by past results, risk assessments, and subjectivity in item valuation. The greater
the expected misstatement, the larger the sample needed for reliable estimation.
→
Relationship: Direct – Increase in EM Increase in sample size.
f. Stratification of the Population
Stratification divides a population into subpopulations (strata) of similar characteristics,
such as monetary value.
Objective: To reduce variability within strata, allowing a smaller overall sample size. It
increases audit efficiency by directing more testing toward larger or riskier items.
→ →
Relationship: Inverse – Stratification Reduced variability Smaller sample size.
g. Sampling Units in the Population
For large populations, the actual population size has little or no effect on the required
sample size.
For small populations, sampling may not be efficient compared to other audit procedures
because testing every item could be more practical.
Procedures in a variable sampling plan
In summary, below are factors perceived to have an effect in sample size.
Procedures in a variable sampling plan
B5. Determine the method of selecting the sample and select the sample
After determining the sample size, the auditor must decide on the method of selecting the
sample and then proceed to select the sample items.
B6. Test the sample item
The auditor shall apply the appropriate audit procedures to all items in the sample to
determine whether there are misstatements in the account balance tested.
Possible conditions observed during testing include:
a. The sample item is adequately supported (fairly presented).
b. The sample item is not adequately supported (possible misstatement).
IMPORTANT NOTES:
For the treatment of the following items, use the concepts discussed in attribute sampling
plan.
Voided, unused, or inapplicable documents selected as sample.
Sample selected is missing.
Sample selected represents an anomalous error.
Procedures in a variable sampling plan
Treatment of misstatement identified
When a misstatement is identified, the auditor shall analyze the misstatement to
determine its nature and cause.
If many misstatements share a common feature—such as type of transaction, location,
or period—the auditor may decide to extend audit procedures to all similar items.
The auditor must also consider whether the misstatement could indicate the possibility
of fraud.
B7. Evaluate the sample results
Once audit procedures have been performed on all samples, the auditor shall evaluate:
a. the results of the sample, and
b. whether the use of audit sampling has provided a reasonable basis for conclusions
about the population that has been tested.
Evaluating the sample results in a test of details requires the projection or extrapolation
of misstatements determined in the samples to the population as a whole.
Projected misstatement
are the auditors best estimate of
misstatements in populations, involving the
projection of misstatements identified in
audit samples to the entire populations
from which the samples were drawn.
B.8 Document the
sampling procedure
The following items should be documented in the
engagement’s working papers:
Each of the above procedures performed
evidence obtained that will serve as a basis for overall
conclusions
overall conclusion
CLASSICAL VARIABLE SAMPLING (CVS) TECHNIQUES
CVS is a statistical sampling method for estimating:
• The total audited value of an account or class of transactions
• The total amount of monetary misstatement in an account or class of
transactions
CVS works best with financial data that has the following characteristics:
• Expectation of moderate to larger number of misstatements
• Existence of either overstatement or understatement
CLASSICAL VARIABLE SAMPLING (CVS) TECHNIQUES
Using CVS, projected misstatements may be determined by getting the absolute
value of the difference between the projected audited value and book value of
the population. The amount calculated may represent overstatement and
understatement of the account balance being examined.
PM – Projected Misstatement
AV (Pop’n) – Audited value of the population
AV (Ss) – Audited value of the sample size
BV (Pop’n) – Book value of the population
BV (Ss) – Book value of the sample size
SS – Sample size
Pop’n – Number of units of the population
CLASSICAL VARIABLE SAMPLING (CVS) TECHNIQUES
To project the misstatements, the following may be used when applying CVS.
1. Ratio Estimation
→ Uses the ratio of audited amounts to be recorded amounts in the sample to estimate
the total peso amount of the population and an allowance for sampling risk.
→ Ratio estimation is more appropriate to use when the difference is nearly proportional
to book values.
CLASSICAL VARIABLE SAMPLING (CVS) TECHNIQUES
To project the misstatements, the following may be used when applying CVS.
2. Difference Estimation
→ Uses the average difference between audited amounts and individual recorded
amounts to estimate the total audited amount of a population and an allowance for
sampling risk.
→ Difference estimation is more appropriate when there is little or no relationship
between the absolute amounts of the differences and the book values.
CLASSICAL VARIABLE SAMPLING (CVS) TECHNIQUES
To project the misstatements, the following may be used when applying CVS.
3. Mean-per-unit Estimation
→ Projects the sample average to the total population by multiplying the sample average
by the number of items in population.
CLASSICAL VARIABLE SAMPLING (CVS) TECHNIQUES
Important Notes:
For ratio estimation and difference estimation to be applicable, the following conditions
must be present:
• The total book value of the population must be known
• The book value, on a per item basis, for all items in the population must be known
• Total population book value must be known
• Expected difference between audited and recorded book values must not be too rare
PROBABILITY-PROPORTIONAL-TO-SIZE (PPS)
SAMPLING
→ Is a method of sampling from a finite population in which a size measure is available for
each population unit before sampling and where the probability of selecting a unit is
proportional to its size.
→ Simple stated, the possibility that the amount will be selected as a sample is higher
when the amount of sampling unit is higher. This is the main reason why PPS is primarily
applicable in testing account balances and transactions for overstatement or verifying the
“existence” assertion.
→ This method uses attributes sampling theory to express a conclusion in peso amounts.
THANK
YOU!
Presented by: Erandio,
Fontanares, & Santolices
