Audit Sampling
Audit Sampling

Audit Sampling

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  • Pages: 3 (1544 words)
  • Published: June 29, 2018
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The purpose of this memo is to communicate the results and findings from our team’s assessment of the Accounts Receivable balances for Key West Company as of 20X1.

Our team has already completed a thorough evaluation of the company’s internal control and we believe they are excellent. Therefore, the team has decided to use the Probability-proportionate-to-size sampling theory, (PPS). We have used PPS to find the evidence required to prove there has been no materially misstatement in Key West Company’s accounts receivable accounts. The financial cycle is the cycles of business transactions, which involve the processing of financial activity including cash inflows, outflows, dividends, stocks, and long term debt agreements.

Once an auditor can clearly identify what is involved in the financial cycle then the process may begin test the evidence found. According to FFIECIT, “This process is an essential part of the planning process, which involves designing and building automated control and security features into applications (2009). In order to illustrate team D’s findings during the audit we have created a six-teen slide presentation showing our calculations and findings. In this presentation we will calculate the sample size, sampling interval.

Then we will assume a series of misstatements to calculate the projected misstatement, allowance for sampling risk, and the upper misstatement limit. The following are te


am D’s finding’s, which needs to brought to your attention. There are no internal control deficiencies, the controls over the accounts receivable were found to be working effectively and supported and assessment for a low risk of material misstatements. There may be several feasible courses of action regarding the identified misstatements.

It is more important to be concerned with the process of problem definition and isolation, analysis, and evaluation of alternatives, and the choice of one or more recommendations, rather than trying to find a single answer. The steps taken to test the internal controls were read the state of affairs once for familiarity, noting issues that come to the forefront. Determine all the facts, making notes about symptoms of problems, root problems, unresolved issues, and roles of key players and watch for issues beneath the surface.

By isolating the problem, we get a feel for the overall environment by putting ourselves in the position of one of the key players. Sample Size (Slide 3 and 4) The information from the PPS samplings is as follows: the company has over 4000 customer accounts with a total book value of $3,000,000. Our team decided to use $150,000 as the maximum tolerable misstatement and anticipate there may be $30,000 of misstatement in the population.

We intend to limit the incorrect acceptance risk to The company has 3,000 clients and we calculated that sixty six of those clients should be sampled and we in intend to gather conformation from all the clients that were sampled. It is anticipated that of the amount of clients in ten percent. Our intention is to find positive confirmation of accounts included in the sample and to apply alternative procedures to accounts for which no reply is received. Based on the information given our

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team determined the population size to be sixty-six. This information is presented on slide 4 of our presentation.

Here are the calculations:
Book Value of the Population BV = $3,000,000 Risk of
Incorrect Acceptance 10% RF = 2. 31
Tolerable Misstatement TM = $150,000
Anticipated Misstatement AM = $30,000 EF = 1. 50
Sample Size n = 66 3,000,000 ? 2. 31 n = ———————— 150,000 – (30,000 ? 1. 5) 6,930,000 n = ———————— 105,000 n= 66

Sampling Interval

Once the team determined the sample size was sixty-six we were able to determine the sampling interval using the following formula. The sample interval is determined by taking the book value and dividing the sample size (Boynton & Johnson 2006). After plugging in the numbers, we calculated the sampling interval to be 45,454, which is shown on slide 5 of the presentation. We also anticipated for any clients, which did not provide a response we will use an alternate procedure to determine the correctness of the balances for those client.

To implement a new course of action, everything must be weighted to see if the cost does not out-weigh the benefits. By looking over how the wanted system will affect the outcome of the company is of great consequence. However, when deciding which system to incorporate is where the analysis comes in play. The accuracy of records is very important, due to the fact that companies get in trouble by government, customer, share holders, employees is all documentation is not followed correctly. Having the means and the priority to protect their invaluable date and records is priceless.

Possible Misstatement

Based on the level of internal control over recording of the accounts receivable we have concluded there may only be a few misstatement and any misstatement will be a tolerable amount based on the number of clients and the accounts receivable balances. Once a problem has been clearly identified in the current system, auditor can analyze the current system and find any shortcoming or strong points in the active system, which is where phase two comes into the process. Phase two will allow auditors to build upon the current contrast of maintenance and follow-up to ensure environment will introduce the changes to the current system.

During phase three of the program the auditors to design a fix to ensure the accuracy of the proposed changes to the current system. The final phase is implementation part of the process. After working out all the errors in the test environment the process becomes a battle of maintenance and follow up to ensure changes are working properly. As technology and accounting software changes, many systems need constant updates to comply with all the laws and regulations are being properly followed.

The following assumed misstatements were tested and the team calculated the projected misstatement, allowance for sampling risk, and the upper misstatement limit.

Sample Item Book Value

Audit Value 1 $ 800. 00 $ – 2 $ 1,500. 00 $ 1,350. 00 3 $ 13,000. 00 $ – 4 $ 15,000. 00 $ 14,250. 00 In order to determine the projected misstatement, allowance for sampling risk, and the upper misstatement limit our

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