In this chapter, the learning objectives are: Understand the similarities and differences between audit sampling for tests of controls and substantive tests of details of account balances, learn to apply monetary-unit sampling, work through an extended example of monetary unit sampling, | Audit Sampling: An Application to Substantive Tests of Account Balances Chapter Nine Substantive Tests of Details of Account Balances The statistical concepts we discussed in the last chapter apply to this chapter as well. Three important determinants of sample size are: Desired confidence level. Tolerable misstatement. Expected misstatement. Population plays a bigger role in some of the sampling techniques used for substantive testing. Misstatements discovered in the audit sample must be projected to the population, and there must be an allowance for sampling risk. Substantive Tests of Details of Account Balances Consider the following information about the inventory account balance of an audit client: The ratio of misstatement in the sample is 2% (€2,000 ÷ €100,000) Applying the ratio to the entire population produces a best estimate of misstatement of inventory of €60,000. (€3,000,000 × 2%) Book value of inventory account balance 3,000,000 € Book value of items sampled 100,000 € Audited value of items sampled 98,000 Total amount of overstatement observed in audit sample 2,000 € Substantive Tests of Details of Account Balances The results of our audit test depend upon the tolerable misstatement associated with the inventory account. If the tolerable misstatement is €50,000, we cannot conclude that the account is fairly stated because our best estimate of the projected misstatement is greater than the tolerable misstatement. Monetary-Unit Sampling (MUS) MUS uses attribute-sampling theory to express a conclusion in monetary amounts (. in euros or other currency) rather than as a rate of occurrence. It is commonly used by auditors to test accounts such as accounts receivable, loans receivable, investment securities and inventory. Monetary-Unit Sampling (MUS) MUS uses attribute-sampling theory (used primarily to test controls) to estimate the percentage of monetary units in a population that might be misstated and then multiplies this percentage by an . | Audit Sampling: An Application to Substantive Tests of Account Balances Chapter Nine Substantive Tests of Details of Account Balances The statistical concepts we discussed in the last chapter apply to this chapter as well. Three important determinants of sample size are: Desired confidence level. Tolerable misstatement. Expected misstatement. Population plays a bigger role in some of the sampling techniques used for substantive testing. Misstatements discovered in the audit sample must be projected to the population, and there must be an allowance for sampling risk. Substantive Tests of Details of Account Balances Consider the following information about the inventory account balance of an audit client: The ratio of misstatement in the sample is 2% (€2,000 ÷ €100,000) Applying the ratio to the entire population produces a best estimate of misstatement of inventory of €60,000. (€3,000,000 × 2%) Book value of inventory account balance 3,000,000 € Book value of items sampled 100,000 € .
