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Determining The Extent of Testing

The document discusses different means of selecting items for testing, including testing all items, specific items, and audit sampling using a representative sample. It explains that testing all items is appropriate when populations are small or there are significant risks. Specific items can be high value, over a certain amount, or used to obtain information. Audit sampling provides a reasonable basis to conclude on all items when less than 100% are tested, as long as the sample is representative. The document also outlines the 10 steps of the audit sampling process.

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Alyza Almonia
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33 views14 pages

Determining The Extent of Testing

The document discusses different means of selecting items for testing, including testing all items, specific items, and audit sampling using a representative sample. It explains that testing all items is appropriate when populations are small or there are significant risks. Specific items can be high value, over a certain amount, or used to obtain information. Audit sampling provides a reasonable basis to conclude on all items when less than 100% are tested, as long as the sample is representative. The document also outlines the 10 steps of the audit sampling process.

Uploaded by

Alyza Almonia
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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DETERMINING

THE EXTENT OF
TESTING
Le
• Enumerate the means of selecting

ar
items as the extent of testing

ni
ng
• Discuss when the auditor should test

Ob
all items
• Discuss when it is appropriate to test

j ec
specific items

tiv
• Discuss the concept of audit sampling

es
• Explain the importance of a
representative sample
• Articulate the 10-step audit
sampling
TEST OF CONTROLS TEST OF DETAILS
1 (TOC) (TOD)

EXTENT AND SELECTION


1. ALL ITEMS (100%)
2. SPECIFIC ITEMS (NON-
REPRESENTATIVE)
3. AUDIT SAMPLING
(REPRESENTATIVE)

SUFFICIENT APPROPRIATE
AUDIT EVIDENCE
EXTENT AND MEANS ARE ALL DOES THE AUDITOR
OF ITEMS SELECTION ITEMS TESTED? CONCLUDE FOR ALL
ITEMS?
All Items (100%) YES YES

Specific Items (non- NO NO


representative)

Audit Sampling NO YES


(representative)
TESTING ALL ITEMS (100 %)
It is common for TOD such as when:

1. The population constitutes a small


number of large value items
2. There is a significant risk and other
means do not provide sufficient
appropriate AE
3. The use of computer-assisted audit
techniques (CAATS)
TESTING SPECIFIC NON-REPRESENTATIVE ITEMS
This includes:

1. High value or key items


2. All items over a certain amount
3. Items to obtain information
4. Items to test the operation of certain
control activities
AUDIT SAMPLING (Representative )
Auditor usually performs AS, which is the
application of AP to:

• less than 100 % of items


• all sampling units have a chance of
selection
• in order to provide auditor with a
reasonable basis
SAMPLING RISK
-risk that the auditor's conclusion based
on a sample may be different from the
conclusion if the entire population were
subjected to same AP.
a. Alpha Risk or Type I Misstatement-
affects audit efficiency
b. Beta Risk or Type II Misstatement-
affects effectiveness
DEALING WITH SAMPLING
RISK
a) increase the size of sample
b) using appropriate sample selction
method
NON-SAMPLING RISK
-risk that the auditor reaches an
erroneous conclusion for any reason not
related to sampling risk such as human
error due to:
• use of inappropriate AP
• failure to recognize misstatements or
deviations in the sample tested; and
• misinterpretation of evidence obtained
DEALING WITH NON-
SAMPLING RISK
a) proper planning
b) adequate direction, review and
supervision of Audit Team
THE 10-STEP AUDIT SAMPLING PROCESS

Step 1 Define the objective (purpose) of test

Step 2 Define the deviation or misstatement

Step 3 Identify the relevant population


Step 4 Determine the relevant sampling unit

Step 5 Select the appropriate sampling approach


THE 10-STEP AUDIT SAMPLING PROCESS

Step 6 Determine the sufficient sampling approach

Step 7 Select the representative sample items

Step 8 Perform the testing and evaluate evidence


Step 9 Evaluate the test results and reach conclusion

Step 10 Complete documentation


THE END

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