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AUDITING

BOOKLET 8
ONLINE

TOPIC:
MODULE 8

AUDIT SAMPLING

DR. JACKQUI R. MORENO, CPA

PROF. LORDGEN RILLORAZA, CPA
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MODULE 8 SAMPLING

AUDIT SAMPLING —The application of audit procedures to less

than 100% of items within an account balance or class of transactions
such that all sampling units have a chance of selection. This will enable
the auditor to obtain and evaluate audit evidence about some
characteristic of the items selected in order to form or assist in forming
a conclusion concerning the population from which the sample is drawn.
Audit sampling can use either a statistical or a non-statistical approach.1

Terminology related to Audit Sampling2

Anomalous error—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.

Confidence levels or Reliability Levels—The mathematical complements of

sampling risk; chance that the auditor is willing to take that the sample
estimate may be wrong.

Precision – The accuracy the auditor wants the sample estimate to be; the
estimated difference between the actual amount & the reported amount
based on the sample; When this exceeds the tolerable error, then the
discovered errors are concluded as material.

Expected error—The error that the auditor expects to be present in the

population.

1
Revised Glossary of Terms
2
Revised Glossary of Terms
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Expected deviation rate -- The number of deviations the auditor expects to
find in the population before testing begins. The auditor can develop this
expectation based on the prior year's results or by examining few items in
the population (pilot sample).

Non-sampling risk—Arises from factors that cause the auditor to reach an

erroneous conclusion for any reason not related to the size of the sample.
For example, most audit evidence is persuasive rather than conclusive, the
auditor might use inappropriate procedures, or the auditor might
misinterpret evidence and fail to recognize an error.

Non-statistical sampling—Any sampling approach that does not have the

characteristics of statistical sampling.

Population—The entire set of data from which a sample is selected and

about which the auditor wishes to draw conclusions. A population may be
divided into strata, or sub-populations, with each stratum being examined
separately. The term population is used to include the term stratum.

Sampling risk—Arises from the possibility that the auditor’s conclusion,

based on a sample may be different from the conclusion reached if the
entire population were subjected to the same audit procedure.

Sampling unit—The individual items constituting a population, for example

checks listed on deposit slips, credit entries on bank statements, sales
invoices or debtors’ balances, or a monetary unit.

Statistical sampling—Any approach to sampling that has the following

characteristics:
(a) Random selection of a sample; and
(b) Use of probability theory to evaluate sample results, including
measurement of sampling risk.

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Stratification—The process of dividing a population into subpopulations,
each of which is a group of sampling units which have similar
characteristics (often monetary value).

Tolerable error—The maximum error in a population that the auditor is

willing to accept.

Tolerable deviation rate-- The maximum rate of deviations the auditor is

willing to accept, without modifying the planned degree of reliance on the
internal control.

Total error—Either the rate of deviation or total misstatement. When

added to anomalous error results to the best estimate of population error.

WHEN DO YOU SAMPLE?3

Note that sampling is resorted to ONLY when the auditor believes that
the sample may be a good representative of the whole, in that, the
findings on the sample is to be concluded as the same if the total
population was tested. Hence, we can say that sampling is not required to
be part of any audit procedure.

Not all testing procedures performed by auditors involve audit sampling.

For example, the auditor may decide that it would be more appropriate to
examine the entire population of items that make up an account balance
because the population constitutes a small number of large value items.
Likewise, the auditor may decide to apply audit procedures only to those
items which have particular significance (e.g. all items over a certain
amount).

3
When designing audit procedures, the auditor should determine appropriate means for
selecting items for testing so as to gather audit evidence to meet the objectives of audit
tests.(PSA 530, par 2)

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What are the Risks involved in Sampling?
GENERALLY, any auditor is exposed to the “likelihood of drawing
incorrect conclusions about the account balance or class of transactions
because of (1) human errors such as application of inappropriate audit
procedures, (2) failure to recognize errors in the sample tested, or (3)
misinterpretation of evidence obtained”. This so-called likelihood is
known as Non-sampling risk.

However, when the auditor chooses to elect sampling, wherein 100%

testing isnot employed, he is further exposed to the uncertainty of not
detecting material errors sitting on items excluded from the sample
chosen to be examined. Such risk is referred to as Sampling risk. Events
that give rise to this risk will have to include: (1) The improper selection
of sample units and (2) Inappropriate determination of sample size.

There are two types of sampling risk that could adversely affect the audit.
The alpha risk and the beta risk.
 Alpha Risk is the risk the auditor will conclude, in the case of tests
of control, that control risk is higher than it actually is (i.e. Risk of
Under reliance), or in the case of substantive test, that material
error exist when in fact it does not (i.e. Risk of Incorrect
Rejection). Alpha risk results to auditor performing audit
procedures more than necessary. Hence, alpha risk affects the audit
efficiency.
 Beta Risk is the risk the auditor will conclude, in-the case of tests of
control that control risk is lower than it actually is (i.e. Risk of
Over reliance), or in the case of substantive test, that material error
does not exist when in fact it does(i.e. Risk of Incorrect
Acceptance). Beta risk results in materially misstated financial
statements from not expanding audit tests to a necessary level.
This type of risk is of greater concern to the auditor because this risk
affects the audit effectiveness.

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How can these Risks be controlled?
Sampling Risks may be further reduced4 by:
 Increasing the sample size; and
It is important to realize that both
 Using an appropriate sample statistical and non-statistical sampling
selection method. methods
 Are acceptable;
Non-sampling risk cannot be eliminated  Require the use of auditor's
but can be minimized by… judgment in designing and
 Proper planning selecting the sample, performing
 Adequate direction, review, and audit procedures and evaluating
supervision of the audit team. the results; and
 Cannot assure that the sample
Does Sampling always involve Mathematicalwill be representative of the
Formula?
population.
NO. Actually, sampling may be any of these two approaches:
1. Statistical
…When sample is selected:
1. Randomly
2. With the use of probability theory, you:
i. Design an efficient sample
ii. Measure sufficiency of sample
iii. Evaluate sample results
iv. Measures sampling risk quantitatively

2. Non-Statistical (or Judgmental)

…When sample is selected:
a) Not statistically 
b) Based on relative costs & benefits
c) The auditor being guided by:
i. Experience
ii. Prior knowledge
iii. Current information

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Sampling risks is eliminated when 100% examination is elected.
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d) Without the need of quantitative measures of sampling risk

Is JUDGMENT only USED when using NON-Statistical

Approach?
NO. Both methods cannot do without the auditor’s professional
judgment, well, at least in the evaluation and conclusion parts of the
testing.

When is it PREFERRED to employ STATISTICAL APPROACH

TO SAMPLING?
 Items to be examined involve a very large population
 There is an audit software available for selection
 A single sample is holding significant (or ‘material’) part of the
total evidence

In planning what Audit Procedures can we make use of Sampling?

Audit sampling may be used when performing tests of controls or
substantive tests. When statistical sampling is used, the auditor may use
either attribute or variable sampling plan.

Attribute sampling is a sampling plan used to estimate the occurrence rate.

This is generally used when performing tests of controls to estimate the
rate of deviations from prescribed internal control policies or procedures.

Variable sampling, on the other hand, is a sampling plan used to estimate a

numerical measurement of a population such as peso value. This is useful
when performing substantive tests to estimate the amount of
misstatements in the financial statements

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What are Basic Steps in Audit Sampling?

Audit procedures carried out by means of sampling techniques require
consideration of at least the following basic steps.
1. Define the objective of the test (whether to test for “deviation” or
for “misstatements”)
2. Determine the appropriate population
3. Determine the audit procedure to be performed.
4. Determine the sample size.*
5. Select the sample.*
6. Audit the sample.
7. Evaluate the results.

SAMPLING FOR TESTS OF CONTROLS

Audit sampling for tests of control is generally appropriate when

application of the control leaves evidence of performance. For those
controls that leave no documentary evidence of performance, non-
sampling procedures such as inquiries and observation would be more
appropriate.

How large should the Attribute sample size be?

There are three major factors affecting the determination of sample size
for tests of controls. These are the

 Acceptable sampling risk;

 Tolerable deviation rate; and
 Expected deviation rate

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Rules of Thumb:

Relationship Application of relationship

(Direct/Inverse)
Tolerable rate of The lower the tolerable rate, the
deviation LARGER the sample
Allowable risk The higher the allowable risk of
of Over-reliance over-reliance, the SMALLER the
sample
Expected The higher the expected population
population deviation rate the LARGER the
deviation rate sample

How will the Attribute Sample units be selected?

PSA 530 has identified three principal methods of selecting samples
namely, random number selection, systematic selection, and haphazard
selection.

Random number selection

Under this method, the auditor selects the sample by matching random
numbers, generated by random number table or computer software
generator, with the population numbering system such as document
number. An advantage of this selection technique is that it gives each item
in the population an equal opportunity to be selected.

Systematic selection
Another method of selecting sample that is easier to use compared to
random number selection is the systematic selection. This method
involves determining a constant sampling interval and then selects the
sample based on the size of that interval. 5

5
The auditor should determine that the population is not structured in such manner that the
sampling interval corresponds with a particular pattern in the population.
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Systematic selection is useful when identification numbers lacking. It is

appropriate for both statistical & non-statistical sampling.

Haphazard selection
When using this method, the sample is selected without following an
organized or structured technique. Haphazard selection is useful for non-
statistical sampling, but it is not used for statistical sampling because the
auditor can not measure the probability of an item being selected when
using this method.
Block sampling
This type of selection provides the least assurance for an auditor. It is
composed of items so arranged to each other within a large group of
sampling unit. It yields usually the smallest number of sample size and
hence exposes the auditor to high sampling
In selecting the sample and
risk. Block selection involves selecting a
applying the appropriate audit
block(s) of contiguous items from within the procedures, the auditor may
population. encounter the following
Important notes about block sampling are: situations.
□ Block sampling is best used when a group
of items arranged contiguously within a larger grouping
□ Results from block sampling are inefficient & not generalizable
□ Block sampling should not be used for statistical or non-statistical
sampling without care in controlling sampling risk.

 Voided documents. The auditor may occasionally select a voided or

cancelled document in a sample. If the document has been
properly voided, such document should be replaced by another
sample item.
 Missing documents. If the auditor encounters missing document and
he is unable to determine whether the control has been properly
performed, such item should be treated as a deviation for the
purpose of evaluating sample results.
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How to evaluate results from Attribute Sampling?
When evaluating sample results, both the qualitative and the quantitative
factors of deviations should be considered. Here are some general
guidelines that may be used when evaluating sample results for tests of
controls.

1. Determine the Sample Deviation Rate (SDR).

The sample deviation rate is computed by dividing the number of
deviations found in the sample by the sample size. For example, if the
auditor found 4 deviations out of the 200 sample items, the sample
deviation rate is 2% (4 / 200). This sample deviation rate represents
the auditor's best estimate of the deviation rate in the population.
2. Compare the Sample Deviation Rate (SDR) with the Tolerable
Deviation Rate (TDR) and draw an overall conclusion about the
population.

This comparison may result to the following situations:

 The sample deviation rate exceeds the tolerable deviation
rate.(DR>TDR)
Conclusion/s:
The sample results do not support the auditor's planned degree of
reliance on internal control.
Final Action 1: CR is set at maximum
Final Action 2: ST are increased
 The sample deviation rate is less than the tolerable deviation rate.
(DR<TDR)
Action: Consider the Maximum Population Deviation (MPD) rate
or Upper Precision Limit6

6
(Sample deviation rate + Allowable risk of Over-reliance) ; sum of SDR and Acceptable
Sampling Risk

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The auditor should determine how close the sample deviation
rate is to the tolerable deviation rate. As the sample deviation rate
approaches the tolerable deviation rate the allowance for sampling
risk decreases, or the precision narrows.
Further assume two cases for illustration:
Case 1:
SDR= 2% ; Acceptable Risk for Over reliance (or Sampling
Risk) = 5%
Thus, MPD = 7.00%
Case 2:
SDR= 2%; Acceptable Risk
for Over reliance (or Sampling GENERALLY, as the “Acceptable”
Sampling risk increases, the confidence
Risk) = 10% in the procedures decreases, thus
Thus, MPD = 12% requiring a smaller sample size. This is
true since it produces a higher
“maximum population deviation”.
Conclusion/s :
HOWEVER, If the TDR is
equal to 10%,
…AND in Case 1, where 7% UPL< 10% TDR
Final Action 1: CR is set is retained
Final Action 2: ST are reasonably performed as planned
(i.e. effective)

…AND in Case 2, where 12% UPL= 10% TDR

Final Action 1: CR is set at maximum
Final Action 2: ST are increased, sample size is increased

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WHAT APPROACHES can you choose from to perform

ATTRIBUTE SAMPLING?
Sequential Sampling (A.K.A. Stop or Go)
Best Employed when:
1. auditor expects very FEW DEVIATIONS within the population
Basic Description:
1. does not use fixed sample size
2. separates the sampling process into several stages
3. determine efficient sample size after each test
Basic Mechanics:
1. After a step, the auditor determines if it is warranted to accept
or increase the preliminary level of control risk that is if he
believes he had acquired sufficient data.

Discovery Sampling
Best Employed when:
1. NO DEVIATIONS are expected in the population
2. Normally used when the auditor suspects that an irregularity
might have been committed.
Basic Description:
1. assures the auditor will note at least one exception
Basic Mechanics:
1. Any 1 noted error results in rejection of the control as to be
relied upon.

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SAMPLING FOR SUBSTANTIVE TESTS
Substantive tests are concerned with the amounts reported in the financial
statements. Audit sampling is appropriate when performing tests of details
to estimate the amount of misstatements in the financial statements.

How large does the Variable Sample size have to be?

When determining sample size for substantive tests, the following factors
must be considered:
 Acceptable sampling risk 7
 Tolerable misstatement
 Expected misstatement
 Variation in the population8

Rules of Thumb:
Factors Relationship Sample Size
Tolerable Inverse The lower the tolerable
misstatement misstatement, the LARGER the
sample
Allowable risk of The higher the allowable risk or
incorrect acceptance Inverse incorrect acceptance, the
LOWER the expected reliability,
and the SMALLER the sample
Expected amount of Direct The higher the expected
misstatement amount of misstatement, THE

7
For practical purposes, the auditor uses the acceptable level of detection risk as the
acceptable sampling after giving adequate consideration to the risk that analytical procedures
may fail to detect material misstatement in account balance.
8
When using statistical sampling, this variability is measured by the standard deviation.
When a population consists of highly variable recorded amounts, it is difficult to select a
representative sample. Consequently, a larger sample size is required as the degree of
variability within the population increases. The auditor can estimate the variation based on
the prior year's tests results or a pilot sample.

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Factors Relationship Sample Size
LARGER the sample
Assessed level of Direct The high the assessed level of
control risk control risk, the LARGER the
sample
Population size Direct The larger the population, the
LARGER the sample
An increase in the Direct The higher the inherent risk,
auditor’s assessment the LARGER the sample
of inherent risk*
An increase in the use The more alternative
of other substantive Inverse procedures there are, the
procedures directed at SMALLER the sample is
the same financial necessary for each test
statement assertion*

Stratification of the Inverse

population when
appropriate *

How will the Variable Sample units be selected?9

Stratified sampling
Best Employed when the auditor wants to:
1. Improve audit efficiency, by reducing sample size without
increasing sampling risk and
2. Reduce the variability of items within each stratum

Basic Description and Mechanics:

9
The other methods discussed in Attribute sampling can also be employed for Variable
sampling.
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Stratification is the process of dividing a population into
subpopulations, each of which is a group of sampling units which
have similar characteristics (often monetary value) or which have an
identifying characteristic.

Value weighted selection

Best Employed when:
1. It will often be efficient in substantive testing, particularly when
testing for overstatements, to identify the sampling unit as the
individual monetary units (e.g., pesos) that make up an account
balance or class of transactions.
2. This approach is ordinarily used in conjunction with the systematic
method of sample selection and is most efficient when selecting
from a computerized database

Basic Description:
This method sets the high-value items as priority to be included in
the sample that can result to
smaller sample sizes.

Basic Mechanics:
1. Each peso is treated as one Disadvantage of PPS utility:
sampling unit (a) Understated items have a
2. This method of sample selection is lower probability of being selected
similar to stratified sampling in (b) Items with zero or negative
that large monetary values are balance are not generally
given greater representation in the included in the sample
sample (c) A high frequency of
misstatements, results in an
Probability-proportional to Size (PPS) increase in sample size
Best Employed when:
1. Used especially for testing overstatement especially for asset and
revenue accounts
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2. Few or no errors are expected

Basic Description:
1. Automatically stratifies the population to the larger peso amounts
and lower peso items
Basic Mechanics:
1. Items with larger peso amounts have a greater probability of being
selected
2. An item that is individually material will automatically be selected
3. Sample size may be reduced as the same item may be selected
more than once
4. The sample distribution does not have to be close to the
distribution in the population for the sample to be valid
5. Sampling can be initiated prior to year end more easily

Variable Sampling- Mean Per Unit Estimation

It enables the auditors to estimate the average peso value of items in the
sample that will be extended to the population.

How to Evaluate the Variable Sampling results?

Evaluating sample results for substantive tests will involve the following
steps:
1. Project the misstatements to the population using:
 Ratio estimation; or
 Difference estimation
The only difference between the two methods is that ratio
estimation uses the book values of the population size and sample
size to project the misstatement, while difference estimation uses
the number of customers to project the misstatements to the
population. Hence, the use of ratio estimation is appropriate when
the amount of misstatements found is approximately proportional
to the client's book amount.

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2. Compare the projected misstatements together with the tolerable
misstatements and draw an overall conclusion.
If the projected misstatement is greater than the tolerable
misstatement, the auditor will conclude that the account balance is
materially misstated. In this case, the auditor may:
 Examine additional units,
 Perform suitable alternative procedures, or
 Request the client to adjust the account balance.

However, if the projected misstatement is less than the tolerable

misstatement, the auditor should consider the allowance for
sampling risk presented in pages 5 to 6.

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Summary of Concepts
SAMPLING RISKS : ATTRIBUTE SAMPLING
When by When in fact if
The auditor is examining the the …Thus,
exposed to the SAMPLE …. POPULATION Making the Affecting
following risks such The Auditor was Auditor… the auditor’s
as… BELIEVES the considered…
INTERNAL What is TRUE
CONTROL is… about the
INTERNAL
CONTROL is
that it is…
Alpha Risk
Risk of Under
reliance Weak or lacking Functioning Perform Efficiency
(i.e. when Error satisfactorily MORE
rate is lower in Substantive
population than in tests than
sample tested) necessary…

Risk of assessing
control risk too
high

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SAMPLING RISKS :ATTRIBUTE SAMPLING

When by When in fact if
The auditor is examining the the …Thus,
exposed to the SAMPLE …. POPULATION Making the Affecting
following risks The Auditor was considered… Auditor… the auditor’s
such as… BELIEVES the What is TRUE
INTERNAL about the
CONTROL is… INTERNAL
CONTROL is that
it is…
Beta Risk
Risk of Over
reliance Strong Perform LESS
(i.e. when Error and Not to be relied effective Effectiveness
rate is higher in Operating upon procedures
population than
in sample
tested)
Risk of
assessing
control risk too
low

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SAMPLING RISKS :VARIABLE SAMPLING
When by When in fact if
The auditor is examining the the …Thus,
exposed to the SAMPLE …. POPULATION Making the Affecting
following risks such The Auditor was considered… Auditor… the auditor’s
as… BELIEVES What is TRUE
the about the
ACCOUNT ACCOUNT is
is… that it is…
Alpha Risk
Risk of Incorrect
Rejection Fairly Materially Perform Efficiency
(i.e. when Error presented misstated LESS
rate is lower in Substantive
population than in tests than
sample tested) necessary…

SAMPLING RISKS : VARIABLE SAMPLING (continuation)

When by When in fact if

The auditor is examining the the …Thus,
exposed to the SAMPLE …. POPULATION Making the Affecting
following risks such The Auditor was considered… Auditor… the auditor’s
as… BELIEVES What is TRUE
the about the
ACCOUNT ACCOUNT is
is… that it is…
Beta Risk
Risk of Incorrect
Acceptance Materially Fairly presented Perform
(i.e. when Error misstated MORE Effectiveness
rate is higher in Substantive
population than in tests than
sample tested) necessary…

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QUIZZER MODULE 8 SAMPLING

1. The following excerpt is taken for a table of probabilities in percent of

including at least one deviation in a sample for population between 5000
and 10,000.
Sample
Size Upper Precision Limit
Examined
0.003 0.004 0.005 0.006 0.008 1.000
. . . . . . .
. . . . . . .
350 35% 10% 14% 18% 22% 31%
360 36 11 17 21 26 36
370 37 13 19 25 30 41
. . . . . . .
. . . . . . .
460 38 61 76 85 91 97
500 40 64 79 87 92 98
600 46 17 84 92 96 99
700 52 77 89 95 97 99
800 57 81 92 96 98 99

Which of the following statements is true if the tolerable error is 0.006?

a. With one observed deviation and expected 95% confidence, 700 would
be an efficient sample size to conclude that a control procedure is
effective.
b. With a sample size of 500 and no found deviations, one can conclude that
deviations from the observed control will occur 87% of the time.
c. Without observing any deviation, the auditor, at 700 examined units, can
conclude with 95% confidence that deviations in the population will not
be more than 0.6%.

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2. The auditor is sampling 500 items from a population of P125,000 and
8,000 items. Given the following excerpt from the list of sales
invoices, what is more likely the third item in the sample employing
systematic interval?
Invoice Number Invoice Amount
1001 300
1002 500
1003 275
1004 25
1005 250
1006 .
a. 1002
b. 1003
c. 1004
d. 1005

3. An auditor performs a test to determine whether all merchandise for

which the client was billed was received. The population for this test
consists of all
a. Vendors' invoices.
b. Cancelled checks.
c. Receiving reports.
d. Merchandise received.

4. To determine sample size in an attribute sampling application, what

must be specified?
a. Population mean, expected error rate, precision.
b. Precision, reliability, standard deviation.
c. Precision, reliability, expected occurrence rate.
d. Population mean, standard deviation, precision.

5. If an auditor, planning to use statistical sampling, is concerned with

the number of a client's sales invoices that contain mathematical
errors, the auditor would most likely utilize
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a. Sampling for attributes.
b. Sampling for variables.
c. Stratified random sampling.
d. Random sampling with replacement.

6. As a result of tests of controls, an auditor under-assessed control risk

and decreased substantive testing. This underassessment occurred
because the true occurrence rate in the population was
a. Less than the risk of underassessment in the auditor's sample.
b. Less than the occurrence rate in the auditor's sample.
c. More than the risk of underassessment in the auditor's sample.
d. More than the occurrence rate in the auditor's sample.

7. An auditor desired to test credit approval on 10,000 sales invoices

processed during the year. The auditor designed a statistical sample
that would provide a 1% risk of assessing control risk too low (99%
confidence) that not more than 7% of the sales invoices lacked
approval. The auditor estimated from previous experience that about 2
1/2% of the sales invoices lacked approval. A sample of 200 invoices
was examined and 7 of them were lacking approval. The auditor then
determined the upper occurrence limit to be 8%. In the evaluation of
this sample, the auditor decided to increase the level of the
preliminary assessment of control risk because the
a. Expected occurrence rate (2 1/2%) was less than the tolerable
rate (7%).
b. Tolerable rate (7%) was less than the achieved upper occurrence
limit (8%).
c. Expected occurrence rate (7%) was more than the percentage of
errors in the sample (3 1/2%).
d. Achieved upper occurrence limit (8%) was more than the
percentage of errors in the sample (3 1/2%).

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8. Precision is defined as the range (plus or minus) within which the true
answer most likely falls. Reliability, also referred to as the confidence
level, is the likelihood that the sample range contains the true value.
Of the following statements concerning precision and reliability,
which one is not true?
a. Precision is set by the auditor and is a function of materiality and
risk.
b. The narrower the range of precision, the smaller the sample size.
c. An increase in control risk, other parameters remaining
unchanged, causes a narrowing of the precision range.
d. Overall audit risk is the complement of reliability.

9. To determine the number of items to be selected in a sample for a

particular substantive test of details, the auditor should consider all of
the following except
a. Tolerable error.
b. Expected error.
c. Characteristics of the population.
d. Allowable risk of incorrect acceptance.

10. Auditors who prefer statistical to non-statistical sampling believe that

the principal advantage of statistical sampling flows from its unique
ability to
a. Provide a mathematical measurement of risk.
b. Promote a more legally defensible procedural approach.
c. Establish conclusive audit evidence with decreased audit effort.
d. Define the precision required to provide adequate satisfaction.

11. Auditors who prefer statistical sampling to non-statistical sampling

may do so because statistical sampling helps the auditor
a. Measure the sufficiency of the evidential matter obtained.
b. Eliminate subjectivity in the evaluation of sampling results.
c. Reduce the level of tolerable error to a relatively low amount.
d. Minimize the failure to detect a material misstatement due to
non-sampling risk.
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12. In examining cash disbursements, an auditor plans to choose a sample

using systematic selection with a random start. The primary
advantage of such a systematic selection is that population items
a. Which include errors will not be overlooked when the auditor
exercises compatible reciprocal options.
b. May occur in a systematic pattern, thus making the sample more
representative.
c. May occur more than once in a sample.
d. Do not have to be pre-numbered in order for the auditor to use
the technique.

13. Which of the following statements concerning sample size is true?

a. An increase in the tolerable occurrence rate, other factors
remaining unchanged, increases sample size.
b. The higher the expected occurrence rate, other factors remaining
unchanged, the larger will be the sample size.
c. The more critical the attribute being tested, the higher will be
the tolerable occurrence rate set by the auditor, and the larger
will be the sample size.
d. The lower the acceptable risk of underassessment of control
risk, the smaller will be the sample size.

14. The auditor is performing a test to determine whether the gas and
electric appliance company should move its service center from one
location to another. The service center houses the service trucks that
are used to drive to the customers' locations to service their
appliances. The auditor wants to determine the reduction in average
miles driven as a result of moving to the other location. Which of the
following statistical sampling methods would be most appropriate for
this test?
a. attribute sampling
b. discovery sampling
c. probability-proportional-to-size (peso-unit) sampling
d. mean-per-unit sampling
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15. An auditor is using peso-unit sampling with a fixed interval to test an

account with a balance of P750,000. The sample size is 50. The
auditor started the selection process with a random start of 04719.
Which of the following items would be the third sample item
selected?
Invoice Amount Cumulative Amount

a. 7,985 31,374

b. 4,108 35,482

c. 12,305 47,787

d. 456 48,243

16. You were asked to test whether controls are truly effective in the
processing of check disbursements in ABC Co. There have been
10,000 disbursements made during the current audit year. Last year,
out of 7,000 disbursements, 280 deviations were observed and still the
controls were found to be effective. You believe that there has been
nothing that will make your prior year’s audit findings any different
for this current year. Refer to the table for sample size selection
below.

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 CRC-ACE The CPA Professional Review School
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Sample
Size No. of Probability that Deviation is less than:
Examined Deviations
Found
1% 2% 3% 4% 5% 6% 7%
50 0 39.5 63.58 78.19 87.01 92.31 95.47 97.34
1 8.94 26.42 44.47 59.95 72.06 81.00 87.35
2 1.38 7.84 18.92 32.33 45.95 58.38 68.92
. . . . . . . .
. . . . . . . .
70 0 50.52 75.69 88.14 94.26 97.24 98.69 99.38
1 15.53 40.96 62.47 77.51 87.03 92.81 96.1
2 3.34 16.5 35.08 53.44 68.63 79.87 87.59
. . . . . . . .
. . . . . . . .
100 0 63.40 86.74 85.25 98.31 99.41 99.8 99.93
1 26.42 59.67 80.54 91.28 96.29 98.48 99.4
2 7.94 32.33 58.02 76.79 88.17 94.34 97.42
. . . . . . . .
. . . . . . . .
120 0 70.06 91.15 97.41 99.25 99.79 99.94 99.98
1 33.77 69.46 87.82 95.53 98.45 99.48 99.83
2 11.96 43.13 70.16 86.28 94.25 97.75 99.17
. . . . . . . .
. . . . . . . .

If you shall accept 95% reliability that checks are disbursed only when there
are approved vouchers, but have found 1 deviation in the sample, what will
you set as the most efficient sample size?
a. 100
b. 70
c. 120
d. 50 /jrm

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